Q3 2021 GasLog Partners LP Earnings Call

Good morning, My name is Myra and I'll be a conference operator today.

At this time I would like to welcome everyone to the Gaslog partners is very good.

Quarter 2021 results conference call.

All lines have been placed on mute to prevent any background.

After the Speakers' remarks, there will be a question and answer session.

And as a reminder, this conference call is being recorded.

On today's call are Paolo and noisy Chief Executive officer, and it could be yes, this illness Chief financial Officer.

Joseph Nelson head of Investor Relations will begin your conference.

Good morning, or good afternoon, and thank you for joining the Gaslog Partners' third quarter 2021 earnings conference call for your convenience. This webcast and presentation are available on the Investor Relations section of our website Www Dot Gaslog MLP Dot com, where a replay will also be available.

Please now turn to slide two of the presentation. Many of our remarks contain forward looking statements for factors that could cause actual results to differ materially from these forward looking statements. Please refer to our third quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these measures is included in the <unk>.

Appendix today's presentation.

Paolo will begin today's call with a review of the partnership's third quarter and outlook for 2022, following which Akalaitis will walk you through the partnerships' financials. Palo will then provide an update on the LNG shipping and LNG commodity markets. We will then take questions on the partnerships third quarter with that I will now turn it over to Paolo and noisy CEO of Gaslog partners.

Okay.

Thank you Joe and welcome everyone.

Please turn to slide four for Gaslog partners third quarter highlights.

I am pleased to report strong operational and financial performance is under tight backdrop for the LNG shipping market.

The fleet performed approximately 100% availability. Despite the continued challenges of Covid and the resulting code change issues.

Our revenues and cash flow improved significantly on a year on year basis. Following full new charter agreements announced the recent months as well as ongoing cost control vessels.

We did purchase over $12 million of our preference units in the open market at a discount to par further supporting and reductions in our fleet cash breakeven rates.

The Gaslog Shanghai was sold and leased back to China development Bank leasing releasing 20 millions of incremental liquidity and finally, we retired another 36 millions of debt during the quarter, bringing the total to 91 million during the first nine months of the year.

Turning to slide five and look at how the landscape for LNG shipping has changed over the last 12 months.

Looking back at the last year and the LNG commodity market was expected to have an excess of supply until at least mid 2020 with persistent low prices and regional price differentials.

LNG inventories were high around the world the shipping market was expected to be oversupplied due to a heavy delivery schedule.

The term charter market wasn't very active in both terms and spot rates were well below the mid cycle.

Today, we're in a completely different market LNG.

LNG commodity demand is moving as many leads as an out of the world Cope with an energy crisis.

LNG prices and differentials are consequently, a record high.

Term charter durations and rates are at a level not seen in seven years at charter at peak security of shipping capacity to meet end user demand.

Against this backdrop, we expect the partnership open vessels to be well positioned to benefit from stronger rates in the coming months.

Turning to slide six.

Which summarizes our operational upside to the strong shipping market.

As you can see from the chart on the left the partnership has a balanced charter portfolio.

Our fixed charge covenant shown in dark blue more than covers our fixed expenses to at least 2022.

Meanwhile, I'll open days shown in light Gray.

They have significant leverage to the tight shipping market.

You'll note. We also have one vessel on spot market linked contract, which will also benefit from the highest spot rates.

On this open days every $10000 per day of revenue earned at both our operating and overhead expenses will generate an incremental $7 million of EBITA for the partnership.

Slide seven.

Shows global organize gas price differentials in the forecast supply and demand balance for LNG.

The chart on the left displays the future market, which presently implies a wide differential between U S exports and Asian import prices to at least 2023.

This should ensure a high level of difficult vacation utilization.

On the right you will note that the Pacific Basin is expected to have an LNG shortfall of approximately 129 million tons in 2022, According to wood Mackenzie.

These two dynamics combined interfacing gas price and volume the financials should continue to support strong shipping ton mile demand.

Slide eight sets out our 2022 capital allocation plan focusing on debt repayment and further reductions in the breakeven rates for our fleet.

On this slide we demonstrate how amortizing our debt builds balance sheet capacity and equity value using the Gaslog Glasgow as an example.

All of the partnership that he said vessels level and this debt amortization at roughly twice the rate of our ships depreciate.

As you can see from the left hand chart, our loan to value ratio on the Glasgow declines by over 15% during the three years period from the end of 2022 to the end of 2023.

During the same period, our book equity for the vessel net depreciation.

As shown them that item charges projected to increase by 20 million, which represents a 9% compound annual growth rate in the equity value.

As this compelling value creation demonstrates we believe that prioritizing debt reduction supports the partnership future growth in equity value.

Slide nine presents our three steps approach the unitholder value creation over the medium term.

As we've discussed on this in previous calls our strategy is strengthening the partnership to be financially resilient and support the business through cycles as we've seen in 2020.

By strengthening our balance sheets, and reducing our breakeven costs.

We've given ourselves targets to reduce our net debt to below four times, our trailing 12 months EBITDA and to have a total debt to capitalization below 40%.

In addition, we will continue to reduce our fleet cash breakeven rate, which we accelerated in the third quarter by repurchasing preferred units in the open market as the killers will discuss later.

It is our view that achieving these targets will be aided greatly by the sustained strong shipping market, we expected in the coming quarters.

The partnership in fact is one of the few remaining U S listed pure play LNG carrier owner, and we're getting stronger and stronger as we will seek to grow and modernize our fleet over time.

Lastly, as we execute on the partnership capital allocation strategy of balancing its operational and financial leverage we enhance unitholder returns and unlock the equity value of our business.

With that I'll hand over to Atlas to take you through the partnership Q3 financials.

Thank you Paolo.

Turning to slide 11, and the approximately 6000 lots that is out of the third quarter.

As Paolo mentioned earlier I'll find that helpful for the months and quarters <unk> improved significantly from both the second quarter of 2021 Oswald last quarter sidelines plenty Portland at floating rates out there so I'm not that it doesn't.

More specifically revenues.

For the first quarter were 81 million, an 11% improvement from the third quarter of 2020, and 16% improvement over quarter, two 2021.

Yeah.

Yes, yes, he is probably a moderate use of default in the telco agreements mentioned earlier at attractive terms in line with the improvement in the LNG shipping market and the patent business as well as fewer dry docking days.

Adjusted EBITDA was 57 million an increase of 22% from the first quarter of 2020, while our adjusted earnings.

34 cents per unit.

The significant improvement in adjusted EBITDA and adjusted EPS were aided by the improved 11 five months all of the ongoing cost control initiatives as well as favorable movements in LIBOR, which is using us.

Expense.

You think of it as expense cost and we also reduced debt balances.

Looking forward the partnership with southwest.

That's helpful. I had a percent in the fourth quarter in 2021, and no dry dockings supporting sequential improvement in our financial performance.

Turning to slide 12, and look at our cost base.

Operating expenses for the headquarter.

14000, volt hazard and $6 per vessel per day.

Although his expenses with 2008.

$88 per vessel per day, a significant improvement over 2020.

As we look towards the full yet we expect our unit operating expenses for the year $14800 because vessel per day, which includes full content $80 per vessel per day in relation to the dry docking opex components within that full year 2021.

We expect total overhead expenses to average $2500 per vessel per day and doing it.

Lastly declines in LIBOR as well as lower debt levels.

Slide 13.

What was the partnerships debt balances and balance sheet metrics, which continue to be less than.

Net debt to total capitalization was 48% at the end of the headquarter.

Partnership ended the third quarter with 110 million of cash equivalents.

After the end of the quarter, we sold and leased back to Gaslog Shanghai critical that the Gaslog, Shanghai, which provided for an incremental 30 million of additional liquidity net of all costs and sales commissions.

As Paolo noted earlier, we expect to continue setting up the balance sheet, beginning with the scheduled retirement of approximately.

14 million of debt and operating lease expenses in 2022 which is more than covered by al contracted cash flow over this period.

Isn't that balances with the partnerships cash flow breakeven levels over time, improving further the competitiveness of our fleet.

Slide 14 discusses the partnerships.

It is better for them with top bolthouse that they took that fluctuate you use how all in cost base.

During the third quarter with a total of approximately $12 4 million of our series D and C. D. C pass LNG units in the open market at a discount to par.

I think that this is the preference.

Any distributions by approximately $1 million on an annual basis.

Said differently, our daily tracking anything into this.

So I think you used by approximately $200 per day.

We expect to continue opportunistically repurchase in the open market as conditions dictate.

With that I'll turn it over to Paolo.

To discuss the LNG commodity and LNG shipping markets.

Thank you Kayla clear.

Clear and need as usual.

Turning to slide 16, total registered a record 49 term charters greater than six months in quarter three to interfere into one.

Setting a new annual best short term chartering as a growth range of LNG market participant.

To secure shipping tonnage.

Charter rates. It also has a level not seen in many years with potent coty in one year time charter rates for CFT, LNG carrier announced $100000 per day.

Headline spot rates have inflected strongly in recent weeks now $160000 per day.

It's a new it's not unusual for spot rates to move higher ahead of the winter months spot rates are well ahead of the same period last year and I'm needing five year high.

LNG shipping spot rates. This year has benefited from strong growth in the inter basin trading with LNG.

Energy carrier spot rates have also benefited from persistent Panama canal congestion, mainly due to grooming containership, an LNG carrier traffic.

In addition, bulk congestion and dry docking delays, particularly in Asia due to COVID-19 related closures restrictions and staffing challenges have played their part in reducing vessel availability this year.

Lastly, as we head into the LNG and natural gas inventory drilling season during the northern Hemisphere winter months European gas storage levels are presently at 77% and multiyear low and compared to a five years' average of 92%.

We expect Destocking in Europe, and Asia to continue to create demand for U S. LNG, which is positive for the LNG shipping in the coming months.

As a result of these fundamental drivers and frictional challenges, we expect the LNG carrier spot market continued to perform strongly through next winter as I'll discuss over the next several slides.

Slide 17 presents LNG demand and supply during quarter three 2021.

LNG demand increased 8% in the third quarter of 2021 relative to the third quarter of 2020.

As shown by the left hand figure.

Latin America demand was also strong due to lower hydro electric output and a colder than anticipated winter.

On the supply side U S production rose by over 150% year on year to 18 million tons due to no cargo cancellation, let some planned downtime and the ramp up in production from detour trains at Triple camera and Corpus Christi LNG facilities.

The two figures on this slide demonstrates the theme there, which nearly seen all year.

Supply is going to meet strong demand from Asian buyers.

The shipping intensive nature of this trading pattern as propel ton mile growth of 16% to the first nine months of this year more than twice that of the demand for the commodity itself.

Slide 18 displays the LNG carrier order book and delivery schedule According to Poten.

That other 130 LNG carriers in the order book at present, what about 20% of underwater fleet.

Over 86% of the order book has secured multi year employment.

The number of scheduled deliveries in 2022 were less than half those delivered in 2021 and just three.

To deliver next year.

Due to increased demand for containership, another merchant vessels delivery time for the new building order today at approximately three years, making the earliest delivery time in the second half of 2020.

Competition for bird slots at the yards as well as cost inflation have also pushed prices to approximately 210 million up about 10% over the last year.

Slide 19 illustrates our view of shipping supply and demand through the middle of 2023.

Demand is positive based on the number of vessels needed to export 1 million tonnes of LNG per annum expressed as the shipping multiplier.

This analysis does not assume any vessel scrapping. Although there are COVID-19 vessels at about 3% of the global fleet over the age of 30.

And we've seen already nine vessels scrapped so far this year.

Although that's a relatively strong addition to global shipping capacity, we anticipate that the growth of inter basin trading and likely expose to the cycling of older tonnage will more than offset the scheduled deliveries over the next couple of years projecting a relatively tight LNG shipping market through 2022 and 2023.

Slide 20 shows the LNG importing and exporting infrastructure currently under construction.

As we're seeing in energy prices across the world. Today. This infrastructure is critical to meeting the world's demand for energy and more specific a cleaner and more environmental friendly energy.

The present day domain of 125 million tons per annum of LNG production under construction 62 million tonnes of which is in North America.

The right hand chart shows almost 60 million tonnes per annum, but he gasification capacity being built today, 70% of which is in Asia. This again highlights the shipping intensive nature of this growth.

Turning to slide 21 and in somebody.

So I've been in the seat as CEO of the partnership for the past few months.

And I have to say I'm really excited to see the strength of our business of our people on board and assure delivering these great results.

I'm very confident that we are building a stronger and stronger business, which in fact is one of the few remaining U S listed pure play LNG carriers owner, operator, a scale fleet of 15 LNG carrier that is backed by a leading commercial and operational platform and provides a foundation of exposure to the rapidly growing shipping market.

We do anticipate continued growth demand for LNG and therefore for LNG shipping for many years to come as a complement to renewables as the world transition to a carbon free future.

Our balanced charter portfolio not only covers our financial obligations, but leaves significant upside to the tight shipping market expected over the near and medium term.

We've set out a clear capital allocation strategy, which focuses on strengthening our balance sheets and lower breakeven rates for the fleet and create tangible value for our unit holders.

In this light we will continue to opportunistically repurchase our preference units in the open market.

Finally, we want the strength of the partnership to the best shape to be an industry consolidator overtime as opportunities for growth and for fleet modernization would appear.

With that I'd like to open the call for questions.

Thank you at this time I would like to take any questions and we can price today and as a reminder to ask a question you will need to press Star then the number one on your telephone keypad.

Once again to ask a question please press star one.

I would draw your request you May press the talent pool.

We will pause for a moment to compile the Q&A.

This will only take a few moments.

Okay.

We have our first question comes from the line of Randy given from Jefferies. Your line is open. Please go ahead.

Howdy gentlemen, how's it going.

Hi, Randy.

Hi, Randy.

So I guess first congrats on the recent sale leaseback here or are there other opportunities for similar refinancings.

Is the plan to possibly continue repurchasing preferreds using the incremental liquidity.

Yes, I can take the path.

A question first I mean, not a we saw an opportunity.

Good day.

They were trading below.

So we both bought Capex from at least $12 5 million and he sees approximately 1 million saving on the.

Total distributions.

Distribution of the perhaps so.

The opportunities thinking a few tests and.

We may take the opportunity.

Just to remind you he is at the first column.

<unk> period for holiday series of graphs easily see these be in March than Atlantic City will add we can buy them at the pod by pod. So.

The opportunity, we think that it provides us a good mix to meet our targets of deleveraging and reducing to all of them all in cost breakeven.

And Andy on the on the sale and leaseback.

The city is back with CBL gave us $20 million of incremental liquidity.

And we're going to use that to strengthen our balance sheets the.

The other thing that the sale and leaseback is done is one it has left us with an important upside to what we believe is going to be tight and strong market.

But also it has given us the opportunity to develop our ties in China, which we believe is a really good market not only from financial instruments, but also and most importantly for operations and chartering.

So we have received a growing interest from the market. Following this transaction.

What we're doing now is we're evaluating.

What are the further interest in this and we will see if the conditions and the transactions fit the strategy, we just discussed.

Okay.

And then second question for me Slide six it shows you have a couple of vessels coming available. After the second quarter 2022 is it too early to look at employment for those.

And is the plan to secure another one year, so time charter or do those have some options on them that will likely be extended.

I think two two a couple of points on the on what you mentioned that are.

Some options and the options are the one that you list here in the in the lighter blue.

We see actually the market is developing in an interesting way.

<unk> seen this summertime several a charge that was taken coverage ahead of winter to assure vessel availability in what is actually proven to be a very interesting market. So we do see the opportunity for the for the steam vessels in dft's available to be to basically follow the same type of corporate until we have this year.

Actually the input we're seeing from the market is that there is continued interest.

I think it's a little bit too early to say that we will fix it.

In the next few weeks, but.

The positive notes as debt.

Inquiries keep coming even for 2022, so we're very positive about this.

Got it okay, because I don't like on container ships, therefore fixing.

Six nine months in advance so I don't know if that was spreading over to LNG yet or.

We're still kind of waiting for those four things to come but I appreciate the color there. Thanks again.

Thank you.

Our next question comes from the line of Greg Lewis from <unk>. Your line is open. Please go ahead.

Thank you. Thank you and good afternoon. Good morning, everybody, Yeah, I guess I had a question around the fleet on the water I mean, clearly you did the company did a great job of laying out.

The order book for 'twenty, two 'twenty three in terms of what is fixed and what is not.

Just looking at your slide deck in 'twenty two on the fleet page. It looks like you have four P. Ftes rolling off in 'twenty, two and then another three in 2023 do we have any sense for and I guess, you don't own any maggie or ex the app, but do we have any sense for.

What.

The contract.

What percentage of the fleet.

On the water is rolling off in 'twenty, two and 'twenty.

Whatever any kind of color you can provide them I doubt you have specific numbers off the top of your head, but is there any kind of way to parcel out how much spot availability or open days are there in the fleet in 2022.

Hi, Greg.

It's an interesting question the one you asked.

I think maybe a couple of ways to try and answer your question. The first one is if you if we believe that our fleet is somewhat representative to the.

The way the spot in short to medium term chartering actually happens as does a dozen important level of unpredictability, which is expressed by the option that says it'll tell it does have on the existing tonnage that one is difficult to predict put our vessels and everyone else's.

On the other hand, we.

We've seen.

Growing amounts of spot fixtures.

From last year from in the past few years.

I don't have the slide in front of me, but I think what we can say is if that is representative.

<unk> continues amount of open vessels.

I think I would say that we.

We see that in the past five years, we have seen an important increase of let's say open vessel to the to the spot market.

What is that what that represents in terms of percentage of fleet I don't have the number at hand, but it is a growing trend for sure.

A bit more color.

Greg I mean, we have seen.

A significant increase of the seven business lately, which is very encouraging I mean the market piece.

So good today.

We have in Atlanta in July.

The biggest.

Another new building.

He thinks about that and the market has been able to absorb not only the.

Thinking about the existing cap and all that's on US. So the money is quite strong and the strength of new buildings and following UBS is reducing.

That was a factor.

I think in your lending now.

And you will not take delivery before the COVID-19.

And those 2020, but the market seems to be in.

In terms of vessel supply.

<unk>.

Also another aspect is the LNG prices and they have to decide that.

Uh huh.

High level now.

All of the indications that we have today is that the market will remain tight.

Okay, Great and then and then just I had a follow up on the.

On the sale lease back I think I read it right in that there was no purchase option.

For Gaslog to buy the vessel back in the out years.

Kind of curious is.

I guess this is practically what this.

This is this is a new type of transaction.

It combines the classic element itself out when we sell and lease back.

Operating the vessels for five years, so we keep the benefits of.

The market's appetite hey, the next five years, which we believe that we'd be a very good market at the same time.

We also can see.

C N opportunity.

I had to deal with holiday portfolio of assets and that isn't all in deep that option to buy it back.

But at the same time as Paolo mentioned.

It keeps us sign opportunity.

Too often.

We're doing business with China.

Yes.

And it was as you mentioned I mean, you mentioned given take.

We believe in the end the combination of share price the bareboat back right. The tenure and the overall purchase price was best suited for Florida condition that include that no option back. So he was India, let's say at the evaluation of the business case itself.

Perfect all right. Thank.

Thank you all for the time have a great day.

Thank you.

Once again I would like to remind everyone. If you wish to ask a question. Please press star one on your telephone keypad.

Your next question comes from the line of Chris Shaw from Webber Research. Your line is open. Please go ahead.

Oh, good afternoon occasion.

Hi, Hi, Chris and good afternoon.

Uh huh.

Wanted to just kind of.

The.

Units buyback is that part of the 25 million share purchase program and if so how much.

Christian can you can you repeat that again because the line was a it was not so clear.

Sorry can you hear me now.

Yeah, Let's go ahead.

Yes.

If the preferred units buyback was part of the $25 million share repurchase program.

We have a repurchase program to buy back thanks.

Thanks, So <unk> activity has been an active part of why we are using it opportunistically.

No sorry, I was asking is this prepared part of that or is this a separate.

Just trying to get a sense of the allocation remaining pool.

You guys did buyback additional units.

It is happening.

Okay, how much is available.

Baird.

Yeah.

It is available we still camera availability, but it is a matter of time.

There are pricing opportunities. So I wasn't stick to how much that is available and in any case I mean that all of that.

Has seen so far.

Ams callable easy naturally tend to industry.

We can buy them back at par so.

We don't really have an area that asked a lot. So we are opportunistic we have little availability further availability under plan.

Okay.

Thanks, that's helpful and.

Maybe on to the options on.

That's helpful.

I just wanted to get a sense or I understand a little bit better.

Who decides whether or not you guys think that is it is it just completely the charterer or just the discussion amongst both of you guys.

For the for the contracts in 'twenty to 'twenty, two the options auto unchartered adoptions.

Okay, Alright, that's it for me thank you.

Thank you thank you Christian.

And we have no further questions at this time is very noisy making from.

Thank you.

So thanks, everyone for listening and for your continued interest.

And then partners.

We do appreciate it we look forward to speaking to you in next quarter and is traveling and become safer perhaps meeting many of you in person soon and.

In the meantime, stay safe and if you have any questions. Please contact the investor relationship team.

Goodbye for now.

Okay.

Ladies and gentlemen that does conclude our conference for today. Thank you all for participating you may now disconnect.

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