Capital Product Partners L.P. - Common Units Representing Limited Partner Interests (MM) (NASDAQ:CPLP)
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Today : Tuesday 31 January 2012
Capital Product Partners L.P. (the "Partnership") (NASDAQ: CPLP), an international owner of modern double-hull tankers, today released its financial results for the fourth quarter of 2011 ended December 31, 2011.
The Partnership's net income for the quarter ended December 31, 2011 was $1.0 million, or $0.02 per limited partnership unit, which is $1.48 lower than the $1.50 per unit from the previous quarter ended September 30, 2011 and $0.04 lower than the $0.06 per unit in the fourth quarter of 2010. The Partnership's net income was primarily affected by the weak voyage charter results of a number of the crude vessels that were acquired as part of the acquisition of Crude Carriers Corp. ("Crude Carriers"), which was completed on September 30, 2011. For the third quarter of 2011, the Partnership's reported net income included a $65.9 million gain from bargain purchase related to the excess of the fair value of the Crude Carriers net assets acquired over their purchase price under the definitive merger agreement between Crude Carriers and the Partnership.
Operating surplus for the quarter ended December 31, 2011 was $15.8 million, which is $5.5 million higher than the $10.3 million from the third quarter of 2011 and $6.8 million higher than the $9.0 million from the fourth quarter of 2010. 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 the attached Appendix A, for a reconciliation of this non-GAAP measure to net income.)
Revenues for the fourth quarter of 2011 were $44.0 million, compared to $29.0 million in the fourth quarter of 2010. The Partnership's revenues reflect the increased fleet size following the acquisition of Crude Carriers.
Total expenses for the fourth quarter of 2011 were $35.3 million compared to $18.5 million in the fourth quarter of 2010, as a result of the increased voyage expenses as a number of the crude vessels acquired as part of the acquisition of Crude Carriers were operating under voyage charters during the quarter, higher operating expenses as a result of the higher number of vessels in the fleet and higher general and administrative expenses. The operating expenses for the fourth quarter of 2011 included a $7.8 million charge by a subsidiary of our Sponsor, Capital Maritime & Trading Corp. ("Capital Maritime" or "CMTC"), for the commercial and technical management of our fleet under the terms of our management agreements. The operating expenses for the fourth quarter of 2011 also consist of $12.3 million in depreciation and $2.4 million in general and administrative expenses, which include a $0.8 million non-cash charge related to the Partnership's Omnibus Incentive Compensation Plan and a $0.1 million charge in connection with the merger with Crude Carriers and the preparation of the proxy statement on Form F-4 filed with the Securities and Exchange Commission.
Total other non-operating (expense) net for the fourth quarter of 2011 amounted to $7.6 million compared to $8.1 million for the fourth quarter of 2010. Total other non-operating (expense) net for the quarter reflected a $1.0 million gain on the Partnership's interest rate swap agreements as a result of the change in the fair value of certain of these agreements.
As of December 31, 2011, the Partnership's total debt had increased by $159.6 million to $633.6 million compared to long-term debt of $474.0 million as of December 31, 2010. The increase in long term debt reflects the addition of Crude Carriers' $134.6 million of outstanding indebtedness which was refinanced under the Partnership's $350.0 million revolving facility, which is non-amortizing until June 2013, and $25.0 million in indebtedness incurred in relation to the acquisition of the M/V 'Cape Agamemnon' in June 2011. Following the issuance of approximately 25.0 million units for the acquisition of Crude Carriers in a unit-for-share transaction, whereby Crude Carriers became a wholly-owned subsidiary of the Partnership, and the issuance of 7.1 million units to Capital Maritime in connection with the acquisition of the M/V 'Cape Agamemnon' in June 2011, the Partners' capital stood at $517.3 million as of December 31, 2011, which is $277.6 million higher than the Partners' capital as of December 31, 2010.
Fleet Developments
On November 21, 2011, the Partnership announced that the M/T 'Achilleas' (297,863 dwt, built 2010 Universal Shipbuilding Corp., Japan) has secured employment with Capital Maritime for a maximum charter term of up to 3 years. The first 12 months of the time charter earn a gross daily charter rate of $28,000 per day plus 50/50 profit share on actual earnings settled every 6 months. CMTC has the option to extend the time charter employment for a second year at $34,000 per day and for a third year at $38,000 per day with the same profit share arrangements. The Conflicts Committee of the Partnership unanimously approved the charter which commenced on January 6, 2012.
The Partnership also announced on the same date that it has amended certain terms of the charter of the M/V 'Cape Agamemnon' (179,221 dwt, built 2010, Sungdong Shipbuilding & Marine Engineering Co., Ltd., South Korea) to COSCO Bulk. At the request of the charterer, the Partnership agreed to a fixed rate of $42,200 gross per day from November 2011 through the end of its time charter to COSCO Bulk in June 2020. The Partnership stands to gain an additional $1.8 million in charter revenues over the duration of the charter, when compared to the original agreement of $53,100 per day until July 2015 and $33,100 gross per day from July 2015 until the end of the term.
On January 13, 2012, the Partnership announced that the M/T Agamemnon II (51,238 dwt, built 2008 STX Offshore & Shipbuilding Co., South Korea) was fixed to BP Shipping at a daily charter rate of $14,000 net for 12 months (+/- 1 month). The charter is subject to a profit sharing arrangement which allows each party to share, at a 50/50 percentage, additional revenues earned for breaching the Institute Warranty Limits. The new charter rate commenced on January 24, 2012, with earliest expected redelivery at the end of December 2012.
On the same date, the Partnership also announced that the M/T Ayrton II (51,260 dwt, built 2009 STX Offshore & Shipbuilding Co., South Korea) was fixed to BP Shipping for 24 months (+/- 1 month) at a daily charter rate of $14,000 net for the first 12 month period and at a daily charter rate of $15,000 net for the second 12 month period. The charter is subject to a profit sharing arrangement which allows each party to share, at a 50/50 percentage, additional revenues earned for breaching the Institute Warranty Limits. The new charter rate will commence upon redelivery from the vessel's current charter, expected in April 2012, with earliest expected redelivery in March 2014.
Lastly, the M/T Amore Mio II (159,924 dwt, 2001 Daewoo, South Korea) was fixed at a gross daily charter rate of $18,250 to Capital Maritime for 11-14 months (+/- 30 days). The charter commenced on December 18, 2011, upon redelivery from the previous charter, and the earliest expected redelivery under the charter is October 2012. The Conflicts Committee of the Partnership unanimously approved the charter.
Following the commencement of the above charters, the Partnership's charter coverage of total fleet days is estimated at 77% for 2012.
Market Commentary
Overall, the product tanker spot market improved during the fourth quarter of 2011 when compared to the previous quarter, as a result of increased activity in most clean markets driven mainly by the Transatlantic route, as well as increasing momentum in the East clean markets. Clean spot rates saw a further improvement in the Atlantic towards the end of the quarter, posting a strong end to the year on the back of improving fleet utilization and increased seasonal demand.
The period charter market remained robust with increased activity for both shorter and longer term employment with a number of traders and operators seeking longer term charter coverage. As a result, period charter fixtures in 2011 for one year or longer employment for Medium Range ('MR') and handy product tankers experienced a significant increase in activity and at generally higher rates when compared to 2010.
The product tanker order book experienced substantial slippage during 2011, as approximately 56% of the expected MR and handy size tanker new buildings were not delivered on schedule. Analysts estimate that net fleet product tanker growth for 2011 was between 2-3%. We believe the current product tanker order book going forward is amongst the lowest in the shipping industry given the attractive industry fundamentals.
The crude tanker spot charter market for both VLCCs and Suezmaxes saw a seasonal improvement in the fourth quarter. Increased activity out of the Middle Eastern Gulf and West Africa to the East, as well as delays in the Bosporus straits, supported a higher rate environment.
The crude tanker long term period market remained illiquid, as charterers' expectations for the short term spot market prospects remain uncertain and owners are unwilling to fix long term period charters at historically low levels.
The crude tanker order book continued to experience substantial slippage during 2011, as approximately 31% of the expected crude tanker newbuilding deliveries for the year have not materialized. Industry analysts expect the crude tanker order book slippage and cancellations to remain substantial going forward due to the weak spot market, the soft shipping finance environment and downward pressure on asset values.
Quarterly Cash Distribution
On January 23, 2012, the Board of Directors of the Partnership declared a cash distribution of $0.2325 per unit for the fourth quarter of 2011, in line with management's annual guidance. The fourth quarter 2011 distribution will be paid on February 15, 2012 to unit holders of record on February 7, 2012.
The total distributions of $0.93 paid during 2011 qualify fully as return of capital for our U.S. based unitholders, according to our advisors.
Management Commentary
Mr. Ioannis Lazaridis, Chief Executive and Chief Financial Officer of the Partnership's General Partner, commented: "2011 was a transformative year for the Partnership. The completion of the merger with Crude Carriers in September 2011, along with the acquisition of the Cape Agamemnon with an attractive long-term charter in June 2011, have strengthened the Partnership's balance sheet, thereby increasing our financial flexibility and laying a solid basis for distribution growth going forward.
"Moreover, in line with our stated commitment to employ our vessels in the period charter market, thus offering cash flow visibility to our investors, we have successfully chartered for long term period four of our crude tanker vessels operating in the spot market at the time of the completion of the merger, further improving the long term charter coverage of our fleet. We intend to fix the remaining one crude tanker vessel currently operating in the spot market in the coming months as opportunities arise, in order to eliminate the Partnership's remaining crude tanker spot market exposure."
Mr. Lazaridis continued: "During the fourth quarter we enjoyed an improved environment for the product tanker market. The improved supply demand balance, due to the expected low number of newbuilding product tanker deliveries in 2012, as well as the healthy number of period fixtures observed in the product tanker market, make us increasingly optimistic about the medium term outlook of our cash flows.
"Given all of the above, we take this opportunity to reiterate our commitment to our annual distribution guidance of $0.93 per unit."
Conference Call and Webcast
Today, Tuesday, January 31, 2012 at 10:00 a.m. Eastern Time (U.S.), the Partnership will host an interactive conference call.
Conference Call Details:
