Capital Product Partners L.P. Announces Third Quarter 2011 Financial Results

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Oct 2011

Capital Product Partners L.P., an international owner of modern double-hull tankers, yesterday released its financial results for the third quarter ended September 30, 2011. The Partnership's net income for the quarter ended September 30, 2011

was $68.5 million, or $1.50 per limited partnership unit, which is $1.12 higher than the $0.38 per unit from the previous quarter ended June 30, 2011 and $1.40 higher than the $0.10 per unit from the third quarter of 2010. The Partnership's reported net income for the quarter includes a $65.9 million gain from bargain purchase related to the excess of the fair value of the Crude Carriers Corp. ('Crude Carriers') net assets acquired over their purchase price under the definitive merger agreement between Crude Carriers and the Partnership, announced on May 5, 2011 and completed on September 30, 2011. In addition, the Partnership's net income includes $1.8 million in general and administrative expenses incurred in connection with the merger and the preparation of the proxy statement on Form F-4 filed with the Securities and Exchange Commission.
Operating surplus for the quarter ended September 30, 2011 was $10.3 million, which is $4.6 million higher than the $5.7 million from the second quarter of 2011 and $0.8 million higher than the $9.5 million from the third quarter of 2010. The Partnership's operating surplus for the quarter reflects certain general and administrative expenses incurred in connection with the merger with Crude Carriers. 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.
Revenues for the third quarter of 2011 were $30.9 million, compared to $30.3 million in the third quarter of 2010. The Partnership's revenues reflect the increased fleet size and the off-hire of the M/T 'Arionas' for the duration of its scheduled special survey and dry-docking.
Total operating expenses for the third quarter of 2011 were $21.4 million, compared to $18.4 million in the third quarter of 2010, as a result of higher general and administrative expenses and an increase in the Partnership's fleet operating days. The operating expenses for the third quarter of 2011 included $7.9 million in fees for the commercial and technical management of the fleet paid to a subsidiary of Capital Maritime & Trading Corp. ('Capital Maritime' or 'CMTC'), $8.6 million in depreciation and $3.0 million in general and administrative expenses, of which $0.5 million was a non-cash charge related to the Omnibus Incentive Compensation Plan and, as discussed above, they include a $1.8 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.
Net interest expense and finance cost for the third quarter of 2011 amounted to $6.8 million compared to $8.3 million for the third quarter of 2010. Net interest expense for the quarter reflects a $1.3 million gain on the Partnership's interest rate swap agreements as a result of the change in the fair value of certain of the Partnership's interest rate swap agreements.
As of September 30, 2011, the Partnership's long-term debt had increased by $150.4 million to $624.4 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 '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 became a wholly-owned subsidiary of CPLP, and the issuance of 7.1 million units to Capital Maritime in connection with the acquisition of the 'Cape Agamemnon' in June 2011, the Partners' capital stood at $527.3 million as of September 30, 2011, which is $287.6 million higher than the Partners' capital as of December 31, 2010.
Merger Agreement Update
The Partnership announced on September 30, 2011, that it has completed the acquisition of Crude Carriers in a unit-for-share transaction, whereby Crude became a wholly-owned subsidiary of CPLP. The acquisition of Crude solidifies CPLP's position as a leader in the product and crude tanker sectors with a large, diversified, ultra modern high specification fleet of 27 vessels (2.2 million dwt) with an average age (weighted by dwt) of 3.6 years as of September 30, 2011.
Fleet Developments
As announced on October 20, 2011, the M/T 'Alexander The Great' (297,958 dwt, built 2010 Universal Shipbuilding Corp.), the M/T 'Amoureux' (150,393 dwt, built 2008 Universal Shipbuilding Corp.) and the M/T 'Aias' (150,096 dwt, built 2008 Universal Shipbuilding Corp.) have all secured employment with the Partnership's sponsor, Capital Maritime for a maximum charter term of up to 3 years.
The M/T 'Alexander The Great' will be earning a gross daily charter rate of $28,000 per day plus 50/50 profit share on actual earnings settled every 6 months for the first 12 months of its time charter to CMTC. 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 M/T 'Aias' and the M/T 'Amoureux' will each be earning a gross daily charter rate of $20,000 per day plus 50/50 profit share on actual earnings settled every 6 months for the first 12 months of their time charter to CMTC. CMTC has the option to extend the time charter employment for each vessel for a second year at $24,000 per day and for a third year at $28,000 per day with the same profit share arrangements.
Following the commencement of the above charters, the Partnership's charter coverage of total fleet days is estimated at 64% for 2012.
Market Commentary
Overall, for most of the third quarter of 2011 the product tanker market saw softer spot rates, when compared to the previous quarter, due to weaker US gasoline imports and lack of arbitrage opportunities in the transatlantic market.
The period charter market remained robust with increased activity for both shorter and longer term employment.
The product tanker order book continued to experience substantial slippage during 2011, as approximately 60% of the expected Medium Range ('MR') and handy size tanker new buildings have been delivered on schedule. We believe the current product tanker order book is amongst the most attractive in the shipping industry.
The crude tanker spot charter market for both VLCCs and Suezmaxes remained close or at historical lows mainly due to increased tonnage availability in most trading areas despite healthy fixture activity. The Suezmax market saw signs of improvement in September due to increased demand from European refineries and congestion in the Bosphorus Straits.
The crude tanker long term period market remained illiquid, as charterers' expectations for the short term spot market prospects remain negative and owners are unwilling to fix long term period charters at low levels.
The crude tanker orderbook continued to experience substantial slippage year to date, as approximately 27% of the expected crude tanker newbuilding deliveries for the year have not materialized. Industry analysts expect crude tanker orderbook slippage and cancellations to remain substantial going forward due to the depressed spot market, the weak shipping finance environment and downward pressure on asset values.
Quarterly Cash Distribution
On October 26, 2011, the Board of Directors of the Partnership declared a cash distribution of $0.2325 per unit for the third quarter of 2011, in line with management's annual guidance. The third quarter 2011 distribution will be paid on November 15, 2011 to unit holders of record on November 7, 2011.
Management Commentary
Mr. Ioannis Lazaridis, Chief Executive and Chief Financial Officer of the Partnership's General Partner commented: "We are pleased to have completed the merger with Crude Carriers in September 2011, which has strengthened the Partnership's balance sheet thereby increasing our financial flexibility and laying a solid basis for future distribution growth going forward.
"Moreover, following our recent announcement of the period fixtures for three of the five crude tanker vessels operating in the spot market at the time of the completion of the merger, the long term charter coverage of our fleet has improved. In line with our stated commitment to employ our vessels in the period charter market, thus offering cash flow visibility to our investors, we intend to fix the remaining two crude tanker vessels 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.
"In addition to our fixtures of the three crude carriers we will have the opportunity to charter out a number of product tankers in the upcoming year, a period in which we expect charter rates to firm reflecting a more positive product tanker market environment.
"Given all of the above, we take this opportunity to reiterate our commitment to our annual distribution guidance of $0.93 per unit."
Source: Capital Product Partners