Hoegh LNG Partners Preferred Units: Parent Not Likely To Play Foul

Höegh LNG Partners reported strong quarterly results, marked by decent profitability and record cash generation, with its entire FSRU fleet fully employed on long-term, profitable contracts. This robust cash flow adequately covers preferred unit distributions and parent demands, offering investors a 12.9% dividend yield on preferred units at current prices and potential 50% upside upon redemption, leading to a reiterated 'Buy' rating for these units.

Analysis

Höegh LNG Partners (HMLPF) reported strong quarterly results, demonstrating robust profitability and record cash generation. This financial performance is underpinned by a key operational strength: its entire fleet of floating storage and regasification units (FSRUs) is fully employed on profitable, long-term contracts, ensuring stable and predictable revenue streams. The company's cash flow is more than sufficient to cover both preferred unit distributions and substantial cash transfers to its parent, Höegh LNG Holdings. For investors in the preferred units, this translates into a compelling dual-return opportunity, comprising a significant 12.9% dividend yield at current prices and the potential for approximately 50% capital appreciation in the event of redemption, forming the basis for the reiterated "Buy" rating.

Key Decisions for Investors

• Investors seeking high-yield income should evaluate the preferred units (HMLPF) for their 12.9% dividend, which is supported by the stability of cash flows from a fully contracted FSRU fleet.
• The investment thesis presents a total return opportunity, combining high current income with a potential 50% capital upside upon redemption, which may appeal to investors with a longer-term horizon.
• It is crucial to monitor the company's cash flow generation and capital allocation policies, particularly the level of distributions to the parent company, to ensure the continued robust coverage of preferred dividends.