GasLog Partners LP (GLOP) 2021 Q4 法說會逐字稿

Good morning. My name is Sherry, and I will be your conference operator today. At this time, I would like to welcome everyone to the GasLog Partners Fourth Quarter 2021 Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

On today's call are Paolo Enoizi, Chief Executive Officer; and Achilleas Tasioulas, Chief Financial Officer; Joseph Nelson, Head of Investor Relations, will you begin your conference?

Good morning or good afternoon, and thank you for joining the GasLog Partners Fourth Quarter 2021 Earnings Conference Call. For your convenience, this webcast and presentation are available on the Investor Relations section of our website www.gaslogmlp.com, where a replay will also be available.

Please now turn to Slide 2 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 fourth 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 appendix to this presentation.

Paolo will begin today's call with the review of the partnership's fourth quarter and full year highlights, following which Achilleas will walk you through the partnership's financials. Paolo will then provide an update on the LNG shipping and LNG commodity markets. We will then take questions on the partnership's fourth quarter.

With that, I will now turn it over to Paolo Enoizi, CEO of GasLog Partners.

Thank you, Joe, and welcome everyone to our fourth quarter conference call from a very snowy Athens. Please turn to Slide 4 for GasLog Partners fourth quarter and full year 2021 highlights.

I'm pleased to report another quarter of strong operational and financial performance for the partnership. The fleet performed at approximately 100% availability in the fourth quarter and for all of 2021, despite the ongoing challenges created by COVID-19.

Our focus on cost control along with the strengthening charter market last year for stable cash generation and improved profitability. We repurchased another $6 million of our preference units in the open market bringing the total repurchase in 2021 to $18 million. And finally, we retired another $17 million of debt during the quarter, bringing the total to $108 million for 2021.

Turning to Slide 5 and a summary of our financial performance in 2021. As you can see from the chart on this slide, the chartering 4 of our vessels on effective terms, along with our strategy of reducing our debt and lowering our cost base, improved our profitability. Despite a 2% decline in revenue last year relative to 2020, our profitability increased 8%. As noted on our last call, our capital allocation for 2022 will continue to focus on debt repayment and reducing the break-even rates of our fleet will improve its cash flow capacity.

Turning to Slide 6, 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 charter coverage shown in dark blue, more than covers our fixed expenses through at least 2022. Meanwhile, our open days shown in light gray, display a significant leverage to the tight shipping market. Note, we also have 1 vessel on spot market link contract, which will also benefit from higher spot rates.

Our chartering team did a great job in fixing through the seasonal lows of quarter 1. The majority of our open days for 2022 are in the seasonally strong period of the year. And every $10,000 per day of revenue earn above our operating and overhead expenses will generate an incremental $13 million of EBITDA for the partnership.

With that, I'll hand over to Achilleas to take you through the partnership quarter 4 financials.

Thank you, Paolo. Turning to Slide 8 and the partnership's financial results for the fourth quarter. As Paolo mentioned earlier, our financial performance in quarter 4 2021 improved significantly from both the third quarter of 2021, as well as fourth quarter of 2020.

Specifically, the revenues for the fourth quarter were $88 million, a 4% improvement from the fourth quarter of 2020. The revenue improved year-over-year is primarily due to the 4 new term charter agreements that we signed in the second half of 2021. Adjusted EBITDA was $64 million, an increase of 9% from the fourth quarter of 2020, while adjusted earnings was $0.45 per unit. The significant improvement in adjusted EBITDA and adjusted EPS were aided by the improved revenue performance, our ongoing cost control initiatives, and in addition, in terms of the EPS, the lower interest expenses due to declining debt balances and the preference shares buyback that reduced the preference share distributions.

Looking forward, the partnership has chartered coverage of 100% in the first quarter of 2020 and 76% charter coverage for all of 2022. In addition, we have not scheduled drydock in this year, which provides good cash flow visibility.

Turning to Slide 9, and to look at our cost base. Our overhead expenses for 2021 were approximately in line with our averages for the full year and the guidance we gave on our last call. As we look towards 2022, we expect our unit operating expenses to average $13,700 per vessel per day, while we expect our overhead expenses to average $3,200 per vessel per day.

The significant decline in our operating expenses for 2022 is due to a reduction in the management fee we will be paying to our current GasLog entity effective on January 1, 2022, as well as no drydocking expenses for the year. This lower operating costs are offset by higher overhead expenses primarily related to an increase in the administrative service fee to GasLog entity effective from January 1, 2022, as well as direct public company expenses which were previously shared between GasLog entity and GasLog Partners. Public company expenditures are now borne by the partnership alone following our current take private transaction last year.

Our overall cost base has been declining significantly over the last several years. Specifically, our unit OpEx declined by 9% since 2019 and our unit G&A declined by 10% as compared with our 2022 guidance, fully absorbing all the one-off costs associated with COVID-related disruptions and the changes in the GasLog group mentioned above. As we have previously stated, we continue to look for ways to reduce our cost base further.

Slide 10 shows the partnership's debt balances and balance sheet metrics as well as the progress we have made towards our leverage targets in 2021. The partnership's balance sheet remains robust. The partnership ended the fourth quarter with $146 million of cash and cash equivalent. Our capital allocation priorities since 2020, we have focused on reducing our leverage and cost base.

Last quarter, we presented our target leverage metrics, which you can find on the left side of this slide. I'm pleased to say that we have made progress towards these goals in 2021, despite the noncash impairment charge of $104 million we took in the fourth quarter related to 5 steam to buying LNG carriers book value.

Specifically, we retired approximately $108 million of debt during 2021, which reduced our debt to total capitalization to 54% from 56% in the fourth quarter of 2020 when combined with our $146 million of cash on the balance sheet, our net debt to capitalization has been reduced to 47% by the end of the fourth quarter from 51% at the end of 2020.

In addition, our net debt to trailing 12 months EBITDA has declined to 4.3x. We expect to continue strengthening our balance sheet, beginning with the scheduled retirement of approximately $114 million of debt and lease liabilities in 2022, which is covered by our contracted cash flow over this period. Reducing debt balance sheet will reduce the partnership's cash flow breakeven levels over time, improving further the competitiveness of our fleet. We believe that prioritizing debt reduction supports the partnership's future growth in equity value and enhances the overall shareholders' value.

Slide 11, discussing the partnership's preference unit repurchase program, which supports our strategic effort to reduce our cost base. During the fourth quarter, we repurchased a total of approximately $6 million of our Series B and Series C preference units in the open market, bringing our total for 2021 to approximately $18 million.

Our repurchases to date were at an average price of $25 per unit, which is at par value. These repurchases reduced preference unit distribution by approximately $1.5 million on an annual basis. We expect to continue opportunistically repurchase preference units in the open market as positions dictate.

With that, I will turn it over to Paolo to discuss the LNG commodity and the LNG shipping markets.

Thank you, Achilleas. Turning now to Slide 13. Poten registered 44 term charters greater than 6 months in quarter 4 2021. Helping to set a new annual record of 165 term charters for 2021. The high level of term charting served last year was in response to strong LNG demand, total mile growth and logistical bottlenecks around the world. This dynamic along the wide arbitrage for delivering energy to Asia from the United States during much of 2021 led our customers and others to seek term coverage and security of shipping capacity.

On the right chart, you'll note that headline spot rates have declined in recent weeks, although headline spot rates have inflected lower now around $28,500 per day, it is an unusual for spot rate to decline as we approach the end of the Northern Hemisphere winter. Despite the decline in spot rates, term rates are relatively firm, as the 1-year time charter right is currently assessed at $87,000 per day according to Clarksons. This is indicative of charter's expectations for a tight market in the months ahead.

In addition, the forward curve for LNG spot rates indicates rising rates through the rest of 2022. As a result of these fundamental drivers and frictional challenges, we expect the LNG caveat spot market to continue to perform strongly through the next winter, as I'll discuss over the next several slides.

Slide 14 presents LNG demand and supply during quarter 4 2021. LNG demand increased 8% in the fourth quarter of 2021 relative to the fourth quarter of 2020, according to Poten, as shown by the left-hand figure. Demand from Europe was strong in the fourth quarter. The combination of all the reliance on renewables, low storage inventory and lower-than-anticipated imports from Russia and Norway pushed demand for LNG, resulting a record high prices in the region, underscoring the need for natural gas and LNG as a transition fuel in the evolving energy landscape.

On the supply side, U.S. production rose by over 28% year-on-year to 19 million tons due to less unplanned downtime and the ramp-up in production from the third trend with Freeport, Cameron and Corpus Christi LNG facilities. This continues a theme witness throughout 2021. U.S. production increases net global demand growth for natural gas.

The ship intensive nature of via supply relative to end users in Asia and Europe has propelled on my growth up to 16% in 2021, more than twice that of the demand of the commodity. Slide 15 shows significant cost increases for natural gas in Asia and Europe since quarter 4 2020. The past few months have highlighted the dangers of lack of infrastructure investment in gas, which we can observe by noting the record high energy crises in Asia and Europe shown on this figure.

In recognition of this energy crisis to European Commission is now considering adding gas and nuclear power to the green taxonomy. This would accomplish the goal of reducing emissions from the generation of electricity while also securing steady and competitive supply of energy. LNG is the most versatile source of gas given its destination flexibility and will be needed in the long-term as it provides a stable platform for the transition to renewables.

High absolute gas prices and underwater should ensure high level of liquification utilization, while the potential for the widening arbitrage between producers in the U.S. and consumers in Asia will have the additional benefit of lantern in ton mile demand. In addition, Europe is anticipated to exit this winter with historically low inventories of natural gas. This again has the potential to drive additional demand for LNG for inventory restocking.

Slide 16 displays the LNG carrier order book and delivery schedule according to Poten. There are 151 LNG carriers in the order book at present, but about 25% are underwater fleet. Over 80% of the order book has secured multiyear employment. In addition, the number of scheduled deliveries in 2022 are less than half total deliveries in 2021, and there are no unfixed vessels scheduled this delivery in the year.

Due to increased demand for container ship and other merchant vessels delivered time for the new building order today at approximately 3 years, making the earliest delivery time in the first half of 2025. Company ship for birds lives at the yards as well as cost inflation have also pushed prices well above $210 million, up at least 10% over the last year.

Slide 17 illustrates our view of shipping supply and demand through the end of 2023. Demand is partly based on the number of vessels needed to export 1 million ton of LNG per annum expressed as a shipping multiplier. This analysis does not assume any vessel scrapping, although there are currently 20 vessels or about 3% of the global fleet over the age of 30 and we saw 9 vessels scrapped in 2021.

Although there's a relatively strong addition to global shipping capacity, we anticipate that the growth of interbasin trading and likely estimated recycling 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.

Turning to Slide 18 and summary. I'm very pleased with the overall operational safety results as well as the partnership financial achievement for quarter 4 2021 and for the full year as well. This latest energy crisis has once more shown the pivotal importance of LNG as cleaner fuel to supply the current energy need and enable a sustainable transition to our carbon-free future.

Our fleet is well-positioned for the upside of this increase in demand for LNG and a tight shipping market expected in 2022 and the years to come. And we've made good progress on our capital allocation strategy with continuous deleveraging and opportunistically purchase of preference units in the open market, creating equity value to the unitholders. Finally, the partnership increasing competitiveness and strengthening balance sheet allows us to evaluate opportunities for growth and fleet modernization.

With that, I'd like to open call for questions. Operator?

(Operator Instructions) Our first question will come from Randy Giveans with Jefferies.

So I guess, first question, just looking at your fleet. You have a handful of vessels coming open a few TFDE, a few steam. How soon do you plan on securing charter for those? And then will the likely duration be 1 year? And then specifically to the steam ships what are your thoughts on employment there for 2022 and in 2023?

Thank you, Randy for the question. Yes, indeed, we have vessels that are being opened in quarter 2. We're actually quite comfortable in the '22 charter coverage. I mean we are covered 76% and our portfolio is quite balanced. We see opportunities in the opening of the vessels in quarter 2 and in quarter 3 ahead of the winter. And we expect a high level of LNG movement both in terms of capacity and in terms of shipping demand.

We see, as we've mentioned before, we actually see that the term market is remaining quite strong even in the both terms of recorded quarter 1. So I think there's no indication that we will not be able to play a portfolio approach and actually fix the vessels throughout quarter 2 and quarter 3, much like we've done last year.

Got it. And then in terms of steam employment '23 and beyond?

I think the -- for the steams, we actually see similar dynamics as we've seen for the TFDEs. Term market seems to be the most interesting part. There are many far eastern operator that seems to favor steam vessels over others. Some terminals are actually only accepting this size and type of vessels.

And I think we have really no indication that it's going to be otherwise for the steam vessels than it is for the TFDEs. Whether we will be able to find longer terms than 1 year is yet to be seen. But I think the indications for other solving that has been done for similar vessels have also seen terms exceeding the 1 year. So we're quite confident on that as well.

Got it. All right. And then in terms of balance sheet and capital allocation, could we see some additional sale leasebacks in the near term? And what would that incremental cash proceeds be used for, right? You purchased, I think it was $6 million of preference or preferred units during the quarter, about $18 million during the year. So as you look at '22, could additional repurchases there via use of cash?

Yes. This is Achilleas, Randy. You are right. We have with the improved charter market, we have an improved liquidity position. So we will look for additional rate purchases on an opportunistic basis. We have been buying back $18 million of prefs at par, which is a good deal, I think. There is the first series of our prefs is callable in early 2023, so that we don't really have any reason to pay much above part to buy back.

So we'll keep an eye on that. I wanted to reiterate our capital allocation strategy that we are focusing on the debt repayment and the breakeven reductions, which actually improves the equity value of our story. And in terms of the sale leasebacks, we will see -- I mean, we don't really need the incremental liquidity. It is a strategy that we did a TFDE sale and leaseback a while ago, because we wanted to have access in the Chinese market. It will probably be opportunistic.

Our next question will come from Ben Nolan with Stifel.

This is actually Frank Galanti on for Ben. I wanted to start on the steamships, specifically around FSRU, FSU conversions. It sort of seems like that market could be opening up, I guess. Is that something that you guys are considering for those vessels?

Frank, it's Paolo. Yes, indeed, I think as we discussed before on Randy's question, I think there are -- the good thing about having a portfolio approach that it really allows us to look opportunistically to short-term but and also infrastructure development. Now this kind of project, as you know, they take quite a long time to develop. There are different stages from feasibility to FID and even post-FID, there's typically a certain amount of time before you actually able to deploy the asset with a light or a heavier conversion if it's an FSRU.

I can confirm that we are looking at that I think there has been also a public announcement of the Benessere Energy project in Australia, where GasLog Partners has 1 vessel that is being held as the let's say, sole proposal to the FSU development there. So I think that's a public display of how our interest is materializing. Again, nothing that we would report more than this because time is needed to come to a final development, but we'll provide further updates as this and maybe other opportunities come along.

Okay. That's helpful. And then switching gears a little bit. I wanted to ask more of a longer-term question. I sort of understand the current capital allocation strategy is to focus on deleveraging. And so I guess what's the end game for that?

When can the partnership start thinking about growth? And so I think another way of thinking about it is like -- when you get below that 4x leverage and 40% net debt to cap, is that when you start to think about acquiring vessels? Or is that -- just what are the thoughts on that longer term growth strategy?

Yes. Thank you. I do understand that the typical approach to this is asking when I think for us is really what we're trying to achieve and what is our cut in strategy you're going to do for the business and the shareholder value. And if you look at it, we are -- the target are really there to sustain the GasLog Partners through the inevitable shipping cycles to be more competitive because we are actually reducing our cost level and we're becoming more profitable we are building a stronger balance sheet.

And I think these are really the priorities we have given ourselves. And we believe even in this, call it, transitional size, this is a very tangible way to deliver shareholder value. The -- how this is going to pan out when we get there, I think it's really -- it's going to be seen on where the market will be on new buildings, on existing tonnage on other consolidation opportunities. But I think the path there is very clear, and that's what we're really focusing on now.

Just to add a point here. I think that is something that we need to -- we wanted to highlight. Today, our sale price, we believe it's quite low. We believe we are undervalued. I mean we have $230 million of market cap. And we paid down debt on an annual basis of $114 million. So this is pretty much 50%. We have a cash balance of $146 million, which is, again, a significant amount versus our market cap and our annual adjusted EBITDA was equal to our market cap.

So our strategy delivers significant equity value. And we want to get our balance sheet to the point that the Board will be able to review all alternative options on deleveraging, buybacks, dividend policy and growth and take the right decisions at the right time.

Our next question will come from Chris Wetherbee with Citigroup.

So I guess a few questions here. First, just on the fleet. I want to make sure I understand the strategy in terms of the chartering activity that you're expecting in 2Q and 3Q. What do you expect the duration that you think you can get on these open ships? I mean how much can you cover? And how much do you want to cover? So I guess, what is the depth in the period market and would you be willing to go a little longer if the opportunity presents itself? Or is this going to be a strategy of keeping some exposure to the market?

Chris, thanks for the question. I think that the answer is that we are really open to all the possibilities. And I think we want to play to the strength of the market and where the market is going to offer also with the assets that will come open. If you rewind back to 2021, I think the choice of accepting term coverage for us to be able to redeliver in quarter 2 and quarter 3 2022 has so far paid out.

And we believe that this is something that will basically use the same approach to see whether the 1-year charter availability or the spot market is going to show the strength that we look for, then we'll definitely go for these opportunities. We are -- there's no, let's say -- there's no barrier to look at other business but if we go longer, then the dates will have to make sure that they compare well to the 1 year or the spot charter rates.

I think we have the size and the amount of vessels that are going to get opened sequentially through the year that will really allow us to take an opportunistic approach and a portfolio approach as well. So we might want to see coverage if the opportunity arises and then be more tactical if the opportunity comes towards the end of the year.

Okay. Okay. That's helpful. I appreciate that. And then I guess I was curious, in terms of your outlook, you talked about it on Slide 17. The 2.1x multiplier for U.S. cargoes over the course of the last couple of years. I think that's the assumption that you're using for '22 and '23. What has been the experience over the course of the last quarter or 2? Kind of to get a sense of where that number stands now and where it may sort of be dislocated for in the immediate future given the concerns going on around the world relative to supply.

Yes. Look, the shipping multiplier is really an indication what has actually happened. And I think we all recognize the dynamics of the large increase in U.S. production and the large imports in the Far East. I agree with you that in the past quarter, we have seen a different balance coming up with JKM and TTF sometimes swapping positions on the leading cost part. And actually, we see that from 2 different angles. From one, yes, indeed, the shipping multiplier will decrease if the U.S. to Europe will remain the leading side. On the other hand, we have also seen and some of our vessels have done it we have seen relets from Asia back into Europe in the last quarter, which has been another interesting boost of the whole shipping multiplier.

We typically have a part of our graph that actually shows this kind of balance. We decided not to admit it because it has actually flipped in the past week, I think, a couple of times. The longer outlook anyway is for the Far East demand to be the name of the game and then to absorb the majority part of the U.S. production, as we've also seen from the latest long-term contract signed for instance by Cheniere with Far Eastern companies.

Okay. That's very helpful. I appreciate that clarity. I guess 2 more really to sort of wrap up in terms of model dynamics. You highlight unit OpEx being down in 2022 in the outlook. Obviously, unit G&A is stepping up. I guess, on the OpEx side, it sounds like there is no drydocking expected? I guess, what's sort of a normalized rate you think you can achieve with typical drydocking is accounted for, I'm probably thinking out to 2023, but that 13.7%, is that closer to 14.5% or so if you were to assume drydocking. I just want to get a sense of what the more sustainable run rate might be for the fleet.

Listen, I mean we don't have a drydocking next year as you say. We have a drydock is now in 2023. So there is a seasonality there. The drydockings are not reflected in the OpEx. So it's a CapEx item, as you said. And we do drydockings every 5 years. And in a normalized item I don't know. It could be 1,000, but let's take it offline and to help you model this.

Yes. Okay. And maybe G&A is a step up there?

The unit G&A is as we give it, it is $3,200. And this actually reflects an increase on the administrative fee which, on the other side, counterbalance from the decrease on the management fee. We will present in our 20F and detailed revised management fees, but you have the bulk figures there.

(Operator Instructions) Thank you for participating in today's question-and-answer session. I would now like to turn the call back over to management for any closing remarks.

Thank you. Thank you, Sherry. Well, thank you, everyone, today for listening and thank you for your continued interest in GasLog Limited and in GasLog Partners. We certainly appreciate your questions today, your time and we look forward to speaking to you in the next quarter, as hopefully, traveling becomes safer and maybe, hopefully, maybe -- we'll be able to meet many of you in person soon. In the meantime, stay safe. And again, if you have any questions, please contact us and contact the investor relationship team. And enjoy the rest of your day. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.