SOURCE: Capital Product Partners L.P.

Capital Product Partners L.P.

April 26, 2016 07:00 ET

Capital Product Partners L.P. Announces First Quarter 2016 Financial Results, Quarterly Distributions on Common and Class B Units and New Common Unit Distribution Guidance of $0.30 per Year

ATHENS, GREECE--(Marketwired - Apr 26, 2016) - Capital Product Partners L.P. (the "Partnership" or "CPLP") (NASDAQ: CPLP), an international diversified shipping partnership, today released its financial results for the first quarter ended March 31, 2016 and announced distributions on the Partnership's common and Class B units.

Management Commentary

"The board of directors (the "Board") today announced the creation of a capital reserve, a related reduction in available cash distributable on common units and the resetting of the common unit distribution level to a new sustainable path. Accordingly, our Board has fixed our common unit distribution for the first quarter of 2016 at $0.075 per common unit and issued a new annual distribution guidance of $0.30 per common unit, with the expectation to maintain that annual distribution level through 2018.

"Over the last few quarters, the Partnership has experienced a significant deterioration in the trading price of its common units and, as a result, a sharp increase in its cost of capital. This deterioration has occurred against the backdrop of a severe equity and debt market pricing dislocation for a number of publicly traded master limited partnerships. In practice, this means that our ability to access capital markets is currently severely restricted. In addition, following a prolonged downturn in the container and dry cargo shipping markets, Hyundai Merchant Marine Ltd ("HMM"), one of our largest charterers in terms of revenues, has engaged in a restructuring process, which, even if completed successfully, could potentially result in a substantial loss of revenues for the Partnership.

"In the context of high capital costs and a potential decrease in revenues, one of our credit facilities has started amortizing in the first quarter of 2016, while our three other credit facilities will start amortizing in the fourth quarter of 2017. As a result, we are due to repay approximately $175.7 million of debt during the period between the first quarter of 2016 and the end of 2018.

"In the past, we successfully managed to extend the non-amortizing periods and maturities of our credit facilities, which is not practicable today in a cost effective manner. In light of these circumstances, the Board of the Partnership has decided to reserve approximately $14.6 million on a quarterly basis to fully provide for the debt repayments coming due in the next three years, up until the end of 2018.

"We expect that these actions and our new annual distribution level will allow us to maintain a strong balance sheet. We also expect the new distribution level to be sustainable, even if the attempted restructuring of HMM is unsuccessful and we are forced to re-deploy the five vessels under charter with HMM in the currently weak container market.

"Based on our contracted cash flow in the coming years, we expect the new distribution level to provide a healthy common unit distribution coverage ratio after giving effect to the new reserves, even allowing for the adverse events mentioned above.

"We intend to revisit our annual distribution guidance from time to time, including if the Partnership's access to the capital markets improves, if we are successful in refinancing our debt obligations in the coming years under favorable terms or if we are able to pursue accretive transactions by expanding our asset base and increasing the long term distributable cash flow of the Partnership."

First Quarter 2016 Financial Results

The Partnership's net income for the quarter ended March 31, 2016 was $12.1 million. After taking into account the preferred interest in net income attributable to the unit holders of the 12,983,333 Class B Convertible Preferred Units outstanding as of March 31, 2016 (the "Class B Units" and the "Class B Unitholders"), and the general partner's interest in the Partnership's net income, the result for the quarter ended March 31, 2016 was $0.08 net income per common unit, compared to $0.10 net income per common unit during the previous quarter ended December 31, 2015 and $0.09 net income per common unit during the first quarter of 2015.

Operating surplus, prior to Class B Units distributions for the quarter ended March 31, 2016, was $32.8 million, which is $2.4 million lower than the $35.2 million in the fourth quarter of 2015 and $2.9 million higher than the $29.9 million in the first quarter of 2015. The Board has decided to put aside $14.6 million in capital reserves for the quarter, a level that we expect to maintain for the foreseeable future. The operating surplus adjusted for the capital reserves and the payment of distributions to the Class B Unitholders before other cash reserves was $15.4 million for the quarter ended March 31, 2016. Operating surplus is a non-GAAP financial measure used by certain investors to measure the financial performance of the Partnership and other master limited partnerships. Please refer to "Appendix A" at the end of the press release for a reconciliation of this non-GAAP measure with net income.

Total revenues for the first quarter of 2016 reached $58.0 million compared to $48.9 million during the first quarter of 2015, corresponding to an increase of 19%. The increase is mainly a result of the increased size of the Partnership's fleet.

Total expenses for the first quarter of 2016 were $40.0 million compared to $33.1 million in the first quarter of 2015. Total vessel operating expenses during the first quarter of 2016 amounted to $19.3 million compared to $15.8 million during the first quarter of 2015, corresponding to an increase of 22%. The increase reflects primarily the increase of our fleet's size. Total expenses for the first quarter of 2016 also include vessel depreciation and amortization of $17.5 million compared to $14.4 million in the first quarter of 2015 corresponding to an increase of 22%, also as a result of our increased fleet size. General and administrative expenses for the first quarter of 2016 amounted to $1.3 million, compared to $1.8 million in the first quarter of 2015.

Total other expense, net for the first quarter of 2016 amounted to $5.9 million, compared to $3.6 million for the first quarter of 2015. The increase is principally due to the higher interest costs we incurred in the first quarter of 2016 and the gain from exchange differences we recognized during the first quarter of 2015.

As of March 31, 2016, total partners' capital amounted to $918.0 million corresponding to a decrease of $19.8 million from the total partners' capital as of December 31, 2015, which amounted to $937.8 million. The decrease primarily reflects distributions declared and paid during the first quarter of 2016, partially offset by net income for the period.

As of March 31, 2016, the Partnership's total debt increased by $30.8 million to $602.4 million, compared to total debt of $571.6 million as of December 31, 2015. The increase was due to the $35.0 million drawdown under our senior secured credit facility with ING Bank to fund the acquisition of the M/V 'CMA CGM Magdalena', which was delivered on February 26, 2016, partially offset by $4.2 million of scheduled loan principal payments during the first quarter of 2016 under the same credit facility.

Fleet Developments

On February 3, 2016, the Partnership announced that it has secured new time charter employments for the M/V 'Agamemnon' (108,892 dwt / 8,266 TEU, container carrier built 2007, Daewoo Shipbuilding & Marine Engineering Co., Ltd., South Korea) and the M/V 'Archimidis' (108,892 dwt / 8,266 TEU, container carrier built 2006, Daewoo Shipbuilding & Marine Engineering Co., Ltd., South Korea). Both vessels have been chartered to Pacific International Lines ('PIL') for 12 months (+/- 30 days). The charter of the M/V 'Archimidis' commenced on April 17, 2016 and that of M/V 'Agamemnon' is expected to commence in early May 2016. The charterer has the option to extend both charters for an additional 12 months (+/- 60 days) at an increased rate.

On February 26, 2016, the Partnership took delivery of the M/V 'CMA CGM Magdalena' (115,639 dwt / 9,288 TEU, Eco-Flex, Wide Beam Containership built 2016, Daewoo-Mangalia Heavy Industries S.Α.), the last of five vessels that we had agreed to acquire from our sponsor, Capital Maritime & Trading Corp. ('Capital Maritime'). The M/V 'CMA CGM Magdalena' commenced its time charter to CMA-CGM S.A. for five years (-30/+90 days) at a gross daily rate of $39,250.

Following the delivery of the M/V 'CMA CGM Magdalena', the Partnership's charter coverage for 2016 and 2017 stands at 92% and 73%, respectively.

Market Commentary

Product & Crude Tanker Markets

The product tanker market experienced weaker spot charter rates in the first quarter of 2016 compared to the previous quarter. The relatively warm weather for this time of the year, along with high product inventories has had a negative impact on product tanker demand in the first three months of 2016. In addition, the spring refinery maintenance peak has shifted to February-March from the more usual April-May period, which resulted in lower chartering volumes and exerted downward pressure on product tanker spot earnings. As a result, the transatlantic trade saw weaker spot rates towards the end of the quarter, while rates from the U.S. Gulf for ships sailing to Latin America remained at relatively strong levels on the back of firm demand and higher exports from the region continued into the first quarter of 2016.

In the time charter market, Medium Range ("MR") rates remained close to the historical average, but were on average weaker, when compared to the previous quarter, as a result of the softer spot rate environment.

On the supply side, there was minimal activity in terms of new orders for product tankers. Analysts expect that net fleet growth for product tankers for 2016 will be in the region of 5.1%, while overall demand for product tankers for the year is estimated to grow at 3.7%, as the refinery capacity expansion, predominantly in the Eastern hemisphere, continues to generate increased ton mile demand.

The Suezmax crude tanker market remained strong in the first quarter of 2016. However, rates retreated from the seasonably high rates experienced during the previous quarter. The market was driven lower by softer demand resulting from refinery maintenance and relatively warmer weather conditions. On the other hand, Chinese demand for crude imports was solid, with imports rising to new record levels, partially offsetting weaker demand in other regions.

Period rates for Suezmaxes decreased compared to the previous quarter primarily due to the lower rates experienced in the spot market.

On the supply side, the Suezmax orderbook represented, at the end of the first quarter of 2016, approximately 23.0% of the current fleet. However, contracting activity decreased year to date with only four new vessel orders being placed. Suezmax tanker demand is projected to continue growing in 2016 on the back of further growth in crude shipments from the Caribbean, West Africa and the Middle East to China and India. Overall, crude Suezmax deadweight demand is projected to expand by 3.0% in 2016, whereas the fleet is forecasted to expand by 4.6%.

Post-panamax Container Market

After experiencing very low charter activity towards the end of the previous year, post-panamax container vessels saw increased fixing activity from the first quarter of 2016 onwards. However, the buildup of idle container vessels from the previous quarter and particularly in the post-panamax segment meant that owners did not manage to profit from the increased activity, as charter rates remained at historically low levels.

Analysts' expectations for demand growth in 2016 have been revised to 4.1%, while the supply of vessels is expected to increase by 3.9%.

The orderbook compared to the current container fleet stands at 18%, which is the lowest since 2003. At the same time, the container market is experiencing high demolition activity with 105,510 TEU removed from the fleet in the first quarter of 2016 with an average age of 19.7 years. In addition, the ordering of container vessels has almost come to a complete standstill for larger container vessels, while newbuilding slippage is rising.

Quarterly Common and Class B Unit Cash Distribution

On April 26, 2016, the Board of the Partnership declared a cash distribution of $0.075 per common unit for the first quarter of 2016 payable on May 13, 2016 to common unit holders of record on May 6, 2016. 

In addition, on April 26, 2016, the Board of the Partnership declared a cash distribution of $0.21375 per Class B Unit for the first quarter of 2016, in line with the Partnership's Second Amended and Restated Partnership Agreement, as amended. The first quarter of 2016 Class B Unit cash distribution will be paid on May 10, 2016 to Class B Unitholders of record on May 3, 2016.

Conference Call and Webcast

Today, April 26, 2016, the Partnership will host an interactive conference call at 09:00 am Eastern Time to discuss the financial results.

Conference Call Details:

Participants should dial into the call 10 minutes before the scheduled time using the following numbers: 1 866 819 7111 (U.S. Toll Free Dial In), 0800 953 0329 (UK Toll Free Dial In) or +44 (0)1452 542 301 (Standard International Dial In). Please quote "Capital Product Partners."

A replay of the conference call will be available until May 3, 2016 by dialing 1 866 247 4222 (U.S. Toll Free Dial In), 0800 953 1533 (UK Toll Free Dial In) or +44 (0)1452 550 000 (Standard International Dial In). Access Code: 69648481#

Slides and Audio Webcast

There will also be a simultaneous live webcast over the Internet, through the Capital Product Partners website, www.capitalpplp.com. Participants to the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.

About Capital Product Partners L.P.

Capital Product Partners L.P. (NASDAQ: CPLP), a Marshall Islands master limited partnership, is an international owner of modern tanker, container and drybulk vessels. The Partnership currently owns 35 vessels, including twenty modern MR (Medium Range) product tankers, four Suezmax crude oil tankers, ten post panamax container vessels and one Capesize bulk carrier. All of its vessels are under period charters to BP Shipping Limited, Cargill International S.A., CMA-CGM S.A., Cosco Bulk Carrier Co. Ltd., CSSA S.A. (Total S.A.), Flota Petrolera Ecuatoriana ("Flopec"), Hyundai Merchant Marine Co. Ltd., Overseas Shipholding Group Inc., Petróleo Brasileiro S.A. ('Petrobras'), Pacific International Lines ('PIL'), Repsol Trading S.A., Shell International Trading & Shipping Company Ltd., Stena Bulk A.B., and Capital Maritime.

For more information about the Partnership, please visit our website: www.capitalpplp.com.

Forward-Looking Statements

The statements in this press release that are not historical facts, including, among other things, cash generation, our ability to repay external debt, future earnings, our expectations regarding employment of our vessels, redelivery dates and charter rates, fleet growth, as well as market and charter rate expectations, charterers' performance, and our expectations or objectives regarding future distribution amounts, our ability to pursue growth opportunities and grow our distributions and annual distribution guidance, are forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended). These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, to conform them to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our units.

CPLP-F

   
Capital Product Partners L.P.  
Unaudited Condensed Consolidated Statements of Comprehensive Income  
(In thousands of United States Dollars, except for number of units and earnings per unit)  
   
  For the three month periods
ended March 31,
 
  2016   2015  
Revenues 47,329   30,130  
Revenues - related party 10,718   18,755  
Total Revenues 58,047   48,885  
Expenses:        
Voyage expenses 1,852   1,044  
Voyage expenses - related party 101   89  
Vessel operating expenses 16,719   12,812  
Vessel operating expenses - related party 2,616   2,955  
General and administrative expenses 1,265   1,837  
Vessel depreciation and amortization 17,453   14,374  
Operating income 18,041   15,774  
Other income / (expense), net:        
Interest expense and finance cost (6,097 ) (4,696 )
Interest and other income 158   1,073  
Total other expense, net (5,939 ) (3,623 )
Net income 12,102   12,151  
Preferred unit holders' interest in Partnership's net income 2,775   2,810  
General Partner's interest in Partnership's net income 185   185  
Common unit holders' interest in Partnership's net income 9,142   9,156  
Net income per:        
  -- Common unit basic and diluted 0.08   0.09  
Weighted-average units outstanding:        
  -- Common units basic and diluted 119,559,456   104,308,293  
Comprehensive income:        
Partnership's net income 12,102   12,151  
Comprehensive and other comprehensive income: 12,102   12,151  
         
         
Capital Product Partners L.P.
Unaudited Condensed Consolidated Balance Sheets
(In thousands of United States Dollars, except for number of units and earnings per unit)
 
     
Assets    
Current assets   As of March 31,
2016
  As of December 31,
2015
Cash and cash equivalents   40,271   90,190
Trade accounts receivable, net   3,401   2,680
Prepayments and other assets   2,766   2,547
Inventories   4,655   4,407
Total current assets   51,093   99,824
Fixed assets        
Advances for vessels under construction - related party   -   18,172
Vessels, net   1,387,213   1,315,485
Total fixed assets   1,387,213   1,333,657
Other non-current assets        
Above market acquired charters   100,249   100,518
Deferred charges, net   3,461   3,482
Restricted cash   17,500   17,000
Prepayments and other assets   2,058   1,394
Total non-current assets   1,510,481   1,456,051
Total assets   1,561,574   1,555,875
Liabilities and Partners' Capital        
Current liabilities        
Current portion of long-term debt, net   15,910   11,922
Trade accounts payable   9,607   8,431
Due to related parties   19,310   22,154
Accrued liabilities   6,452   7,872
Deferred revenue   8,631   10,867
Total current liabilities   59,910   61,246
Long-term liabilities        
Long-term debt, net   582,932   555,888
Deferred revenue   696   921
Total long-term liabilities   583,628   556,809
Total liabilities   643,538   618,055
Commitments and contingencies        
Partners' capital   918,036   937,820
Total liabilities and partners' capital   1,561,574   1,555,875
         
         
Capital Product Partners L.P.  
Unaudited Condensed Consolidated Statements of Cash Flows  
(In thousands of United States Dollars)  
   
         
  For the three month
periods ended March 31,
 
  2016   2015  
Cash flows from operating activities:        
Net income 12,102   12,151  
Adjustments to reconcile net income to net cash provided by operating activities:        
Vessel depreciation and amortization 17,453   14,374  
Amortization of deferred charges 544   155  
Amortization of above market acquired charters 3,475   3,794  
Equity compensation expense 267   -  
Changes in operating assets and liabilities:        
Trade accounts receivable (721 ) 811  
Prepayments and other assets (883 ) (160 )
Inventories (248 ) (409 )
Trade accounts payable 382   1,820  
Due from related parties -   (432 )
Due to related parties (2,844 ) (4,822 )
Accrued liabilities (1,466 ) (91 )
Deferred revenue (2,461 ) (2,284 )
Net cash provided by operating activities 25,600   24,907  
Cash flows from investing activities:        
Vessel acquisitions and improvements (73,578 ) (30,245 )
Increase in restricted cash (500 ) (500 )
Net cash used in investing activities (74,078 ) (30,745 )
Cash flows from financing activities:        
Proceeds from issuance of long-term debt 35,000   16,750  
Deferred charges paid (69 ) -  
Payments of long-term debt (4,219 ) (1,350 )
Dividends paid (32,153 ) (27,733 )
Net cash used in financing activities (1,441 ) (12,333 )
Net decrease in cash and cash equivalents (49,919 ) (18,171 )
Cash and cash equivalents at beginning of period 90,190   164,199  
Cash and cash equivalents at end of period 40,271   146,028  
Supplemental cash flow information        
Cash paid for interest 6,562   4,074  
Non-Cash Investing Activities        
Capital expenditures included in liabilities 169   -  
Deferred charges included in liabilities 2,358   956  
         
         

Appendix A - Reconciliation of Non-GAAP Financial Measure (In thousands of U.S. dollars)

Description of Non-GAAP Financial Measure - Operating Surplus

Operating Surplus represents net income adjusted for non-cash items such as depreciation and amortization expense and deferred revenue. Operating Surplus is a quantitative standard used in the publicly-traded partnership investment community to assist in evaluating a partnership's ability to make quarterly cash distributions. Operating Surplus is a non-GAAP financial measure and should not be considered as an alternative to net income or any other indicator of the Partnership's performance required by accounting principles generally accepted in the United States. The table below reconciles Operating Surplus to net income for the following periods:

Reconciliation of Non-GAAP 
Financial Measure - Operating Surplus
  For the three month period ended
March 31, 2016
  For the three month period ended
March 31, 2015
  For the three month period ended
December 31, 2015
Net income   $12,102   $12,151   $15,356
Adjustments to reconcile net income to operating surplus prior to class B preferred units distribution            
Depreciation and amortization   18,265   14,586   17,376
Deferred revenue   2,404   3,126   2,429
OPERATING SURPLUS PRIOR TO CAPITAL RESERVE AND CLASS B PREFERRED UNITS DISTRIBUTION   32,771   29,863   35,161
Capital reserve   (14,644)   -   -
OPERATING SURPLUS PRIOR TO CLASS B PREFERRED UNITS DISTRIBUTION   18,127   29,863   35,161
Class B preferred units distribution   (2,775)   (2,801)1   (2,853)
ADJUSTED OPERATING SURPLUS   15,352   27,062   32,308
Increase/(decrease) in other cash reserves   6,138   1,547   (3,008)
AVAILABLE CASH   $9,214   $28,6091   $29,300
             
             

1 Includes distributions to the Partnership's unit holders as of April 30, 2015.

Contact Information

  • Contact Details:
    Capital GP L.L.C.
    Jerry Kalogiratos
    CEO and CFO
    Tel. +30 (210) 4584 950
    E-mail: j.kalogiratos@capitalpplp.com

    Investor Relations / Media
    Nicolas Bornozis
    Capital Link, Inc. (New York)
    Tel. +1-212-661-7566
    E-mail: cplp@capitallink.com