ITEM 3. KEY INFORMATION
A. Selected Financial Data
This information should be read together with, and is qualified in its entirety by, our consolidated financial statements and the notes thereto
included in "Item 18. Financial Statements". You should also read "Item 5. Operating and Financial Review and Prospects".
Certain
numerical figures included in the below tables have been rounded. Discrepancies in tables between totals and the sums of the amounts listed may occur due to such rounding.
A.1. IFRS Common Control Reported Results
The following table presents, in each case for the periods and as of the dates indicated, selected historical financial and operating data. The
selected historical financial data as of December 31, 2016 and 2017 and for each of the years in the three-year period ended December 31, 2017 has been derived from our audited
consolidated financial statements included in "Item 18. Financial Statements". The selected historical financial data as of December 31, 2013, 2014 and 2015 and for each of the years
ended December 31, 2013 and 2014 is a summary of and is derived from our audited consolidated financial statements after retroactive restatement for the transfer of vessels from
GasLog to the Partnership that are not included in this report. The financial statements have been prepared in accordance with IFRS, as issued by the IASB.
Prior
to the closing of our IPO, we did not own any vessels. The following presentation assumes that our business was operated as a separate entity prior to its inception. For the
periods prior to the closing of the IPO, our financial position, results of operations and cash flows reflected in our financial statements include all expenses allocable to our business, but may not
be indicative of those that would have been incurred had we operated as a separate public entity for all years presented or of future results. The annual consolidated financial statements and our
historical financial and operating data under "IFRS Common Control Reported Results" include the accounts of the Partnership and its subsidiaries assuming that they are consolidated from the date of
their incorporation by GasLog, as they were under the common control of GasLog. The following transfers of vessels from GasLog to the Partnership were each accounted for as a reorganization of
entities under common control under IFRS and prior periods were retroactively restated:
|
|
|
Date
|
|
Vessel(s) Transferred
|
May 12, 2014
|
|
GasLog Santiago
,
GasLog Shanghai
and
GasLog Sydney
|
September 29, 2014
|
|
Methane Jane Elizabeth
and
Methane Rita Andrea
|
July 1, 2015
|
|
Methane Alison Victoria, Methane Heather Sally
and
Methane Shirley Elisabeth
|
November 1, 2016
|
|
GasLog Seattle
|
May 3, 2017
|
|
GasLog Greece
|
July 3, 2017
|
|
GasLog Geneva
|
October 20, 2017
|
|
Solaris
|
1
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
|
|
|
|
(in thousands of U.S. dollars, except per unit data)
|
|
STATEMENT OF PROFIT OR LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
66,210
|
|
$
|
196,482
|
|
$
|
248,501
|
|
$
|
282,343
|
|
$
|
311,469
|
|
Vessel operating costs
|
|
|
(12,780
|
)
|
|
(38,435
|
)
|
|
(52,582
|
)
|
|
(55,424
|
)
|
|
(60,015
|
)
|
Voyage expenses and commissions
|
|
|
(811
|
)
|
|
(2,580
|
)
|
|
(3,313
|
)
|
|
(3,842
|
)
|
|
(3,904
|
)
|
Depreciation
|
|
|
(12,591
|
)
|
|
(42,433
|
)
|
|
(55,693
|
)
|
|
(61,770
|
)
|
|
(67,726
|
)
|
General and administrative expenses
|
|
|
(1,699
|
)
|
|
(7,057
|
)
|
|
(11,798
|
)
|
|
(12,627
|
)
|
|
(14,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
|
|
|
38,329
|
|
|
105,977
|
|
|
125,115
|
|
|
148,680
|
|
|
165,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial costs
|
|
|
(12,460
|
)
|
|
(39,992
|
)
|
|
(35,505
|
)
|
|
(49,579
|
)
|
|
(53,602
|
)
|
Financial income
|
|
|
48
|
|
|
51
|
|
|
35
|
|
|
205
|
|
|
998
|
|
Gain/(loss) on interest rate swaps
|
|
|
10,927
|
|
|
(18,554
|
)
|
|
(5,895
|
)
|
|
(6,837
|
)
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
(1,485
|
)
|
|
(58,495
|
)
|
|
(41,365
|
)
|
|
(56,211
|
)
|
|
(52,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
$
|
36,844
|
|
$
|
47,482
|
|
$
|
83,750
|
|
$
|
92,469
|
|
$
|
112,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to GasLog's operations
(2)
|
|
$
|
36,844
|
|
$
|
32,938
|
|
$
|
18,710
|
|
$
|
15,199
|
|
$
|
18,716
|
|
Partnership's profit
(2)
|
|
$
|
|
|
$
|
14,544
|
|
$
|
65,040
|
|
$
|
77,270
|
|
$
|
94,117
|
|
EARNINGS PER UNIT ATTRIBUTABLE TO THE PARTNERSHIP
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units (basic)
|
|
$
|
|
|
$
|
0.75
|
|
$
|
2.38
|
|
$
|
2.18
|
|
$
|
2.09
|
|
Common units (diluted)
|
|
$
|
|
|
$
|
0.75
|
|
$
|
2.38
|
|
$
|
2.17
|
|
$
|
2.09
|
|
Subordinated units
(4)
|
|
$
|
|
|
$
|
0.56
|
|
$
|
1.85
|
|
$
|
2.14
|
|
$
|
0.52
|
|
General partner units
|
|
$
|
|
|
$
|
0.66
|
|
$
|
2.28
|
|
$
|
2.31
|
|
$
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
|
|
|
|
(in thousands of U.S. dollars, except per unit data)
|
|
STATEMENT OF FINANCIAL POSITION DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,117
|
|
$
|
52,313
|
|
$
|
66,743
|
|
$
|
56,506
|
|
$
|
142,547
|
|
Short-term investments
|
|
|
1,500
|
|
|
23,201
|
|
|
1,500
|
|
|
6,000
|
|
|
|
|
Vessels
|
|
|
763,613
|
|
|
1,706,619
|
|
|
1,658,298
|
|
|
2,014,783
|
|
|
1,953,057
|
|
Vessels under construction
|
|
|
60,722
|
|
|
31,070
|
|
|
74,315
|
|
|
|
|
|
|
|
Total assets
|
|
|
862,234
|
|
|
1,823,493
|
|
|
1,817,063
|
|
|
2,092,788
|
|
|
2,110,390
|
|
Borrowingscurrent portion
|
|
|
29,404
|
|
|
35,561
|
|
|
340,378
|
|
|
73,922
|
|
|
103,829
|
|
Borrowingsnon-current portion
|
|
|
496,476
|
|
|
1,028,193
|
|
|
653,768
|
|
|
1,170,844
|
|
|
1,051,767
|
|
Total equity
|
|
|
248,528
|
|
|
677,482
|
|
|
742,642
|
|
|
798,038
|
|
|
910,154
|
|
NUMBER OF UNITS OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner units
|
|
|
|
|
|
492,750
|
|
|
645,811
|
|
|
701,933
|
|
|
836,779
|
|
Common units
|
|
|
|
|
|
14,322,358
|
|
|
21,822,358
|
|
|
24,572,358
|
|
|
41,002,121
|
|
Subordinated units
(4)
|
|
|
|
|
|
9,822,358
|
|
|
9,822,358
|
|
|
9,822,358
|
|
|
|
|
Preference units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,750,000
|
|
2
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
|
|
|
|
(in thousands of U.S. dollars)
|
|
CASH FLOW DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
31,538
|
|
$
|
140,961
|
|
$
|
136,975
|
|
$
|
191,049
|
|
$
|
180,127
|
|
Net cash (used in)/provided by investing activities
|
|
|
(624,486
|
)
|
|
(955,708
|
)
|
|
13,722
|
|
|
(341,946
|
)
|
|
2,226
|
|
Net cash provided by/(used in) financing activities
|
|
|
602,450
|
|
|
846,943
|
|
|
(136,267
|
)
|
|
140,660
|
|
|
(96,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
|
|
FLEET DATA*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of LNG carriers at end of period
|
|
|
4
|
|
|
10
|
|
|
10
|
|
|
12
|
|
|
12
|
|
Average number of LNG carriers during period
|
|
|
2.3
|
|
|
7.6
|
|
|
10
|
|
|
11
|
|
|
12
|
|
Average age of LNG carriers (years)
|
|
|
0.6
|
|
|
4.7
|
|
|
5.7
|
|
|
5.7
|
|
|
6.7
|
|
Total calendar days of fleet for the period
|
|
|
855
|
|
|
2,779
|
|
|
3,650
|
|
|
4,029
|
|
|
4,380
|
|
Total operating days of fleet for the period
(5)
|
|
|
855
|
|
|
2,769
|
|
|
3,585
|
|
|
3,984
|
|
|
4,361
|
|
-
*
-
The
Fleet Data above is calculated consistent with our IFRS Common Control Reported Results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
(restated)
(1)
|
|
|
|
|
|
(in thousands of U.S. dollars)
|
|
OTHER FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(6)
|
|
$
|
50,920
|
|
$
|
148,410
|
|
$
|
180,808
|
|
$
|
210,450
|
|
$
|
233,042
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for vessels and vessel additions
|
|
|
623,031
|
|
|
934,050
|
|
|
8,025
|
|
|
337,647
|
|
|
4,765
|
|
Distributable cash flow
(6)
|
|
|
N/A
|
|
|
27,259
|
|
|
72,254
|
|
|
83,660
|
|
|
100,551
|
|
Cash distributions declared
|
|
|
9,800
|
|
|
22,179
|
(7)
|
|
58,992
|
(8)
|
|
65,577
|
(9)
|
|
83,048
|
(11)
|
Cash distributions paid
|
|
|
|
|
|
23,169
|
(7)
|
|
60,002
|
(8)
|
|
76,377
|
(10)
|
|
83,048
|
(11)
|
Preference unit distributions declared and paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,232
|
|
A.2. Partnership Performance Results
The financial and operating data below exclude amounts related to vessels currently owned by the Partnership for the periods prior to their
respective transfers to GasLog Partners from GasLog, as the Partnership was not entitled to the cash or results generated in the periods prior to such transfers. The Partnership Performance Results
are non-GAAP financial measures that the Partnership believes provide meaningful supplemental information to both management and investors regarding the financial and operating performance of the
Partnership because such presentation is consistent with the
3
Table of Contents
calculation
of the quarterly distribution and the earnings per unit, which similarly exclude the results of vessels prior to their transfer to the Partnership.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
(in thousands of U.S. dollars)
|
|
PARTNERSHIP PERFORMANCE STATEMENT OF PROFIT OR LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(6)
|
|
$
|
|
|
$
|
65,931
|
|
$
|
168,927
|
|
$
|
206,424
|
|
$
|
269,071
|
|
Vessel operating costs
(6)
|
|
|
|
|
|
(12,226
|
)
|
|
(33,656
|
)
|
|
(43,479
|
)
|
|
(55,692
|
)
|
Voyage expenses and commissions
(6)
|
|
|
|
|
|
(817
|
)
|
|
(2,102
|
)
|
|
(2,841
|
)
|
|
(3,377
|
)
|
Depreciation
(6)
|
|
|
|
|
|
(13,352
|
)
|
|
(35,981
|
)
|
|
(45,230
|
)
|
|
(58,193
|
)
|
General and administrative expenses
(6)
|
|
|
|
|
|
(4,591
|
)
|
|
(10,383
|
)
|
|
(11,219
|
)
|
|
(13,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
(6)
|
|
|
|
|
|
34,945
|
|
|
86,805
|
|
|
103,655
|
|
|
137,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial costs
(6)
|
|
|
|
|
|
(15,206
|
)
|
|
(21,789
|
)
|
|
(30,187
|
)
|
|
(44,916
|
)
|
Financial income
(6)
|
|
|
|
|
|
23
|
|
|
24
|
|
|
179
|
|
|
972
|
|
(Loss)/gain on interest rate swaps
(6)
|
|
|
|
|
|
(5,218
|
)
|
|
|
|
|
3,623
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
(6)
|
|
|
|
|
|
(20,401
|
)
|
|
(21,765
|
)
|
|
(26,385
|
)
|
|
(43,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership's profit
(2)(6)
|
|
$
|
|
|
$
|
14,544
|
|
$
|
65,040
|
|
$
|
77,270
|
|
$
|
94,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
PARTNERSHIP PERFORMANCE FLEET DATA*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of LNG carriers at end of period
|
|
|
|
|
|
5
|
|
|
8
|
|
|
9
|
|
|
12
|
|
Average number of LNG carriers during period
|
|
|
|
|
|
2.4
|
|
|
6.5
|
|
|
8.2
|
|
|
10.4
|
|
Average age of LNG carriers (years)
|
|
|
|
|
|
4.5
|
|
|
6.7
|
|
|
7.2
|
|
|
6.7
|
|
Total calendar days of fleet for the period
|
|
|
|
|
|
885
|
|
|
2,377
|
|
|
2,989
|
|
|
3,783
|
|
Total operating days of fleet for the period
(5)
|
|
|
|
|
|
885
|
|
|
2,377
|
|
|
2,944
|
|
|
3,764
|
|
-
*
-
The
Partnership Performance Fleet Data above is calculated consistent with our Partnership Performance Results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
(in thousands of U.S. dollars)
|
|
OTHER PARTNERSHIP PERFORMANCE FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(6)
|
|
$
|
|
|
$
|
48,297
|
|
$
|
122,786
|
|
$
|
148,885
|
|
$
|
196,133
|
|
Distributable cash flow
(6)
|
|
|
|
|
|
27,259
|
|
|
72,254
|
|
|
83,660
|
|
|
100,551
|
|
Cash distributions declared and paid
|
|
|
|
|
|
13,369
|
(12)
|
|
51,192
|
(13)
|
|
65,577
|
(9)
|
|
83,048
|
(11)
|
Preference unit distributions declared and paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,232
|
|
-
(1)
-
Restated
so as to reflect the historical financial statements of GAS-eleven Ltd., GAS-thirteen Ltd. and GAS-eight Ltd. acquired
on May 3, 2017, July 3, 2017 and October 20, 2017, respectively, from GasLog. See Note 1 to our audited consolidated financial statements included elsewhere in this annual
report.
-
(2)
-
See
Note 17 to our audited consolidated financial statements included elsewhere in this annual report.
-
(3)
-
As
disclosed in Note 5 to our audited consolidated financial statements, on May 12, 2014, the Partnership completed its IPO and issued
9,822,358 common units, 9,822,358 subordinated units and 400,913 general partner units. On September 29, 2014, the Partnership completed an equity offering of 4,500,000 common units. In
connection with the offering, the Partnership issued 91,837 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. On June 26, 2015, the
Partnership completed an equity offering of 7,500,000 common units. In connection with the offering, the Partnership issued 153,061 general partner units to its general partner in order for GasLog to
retain its 2.0% general partner interest. On August 5, 2016, the Partnership completed an equity offering of 2,750,000 common units. In connection with the offering, the Partnership issued
56,122 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. On January 27, 2017, the Partnership completed an equity offering of
3,750,000 common units. In addition, the option to purchase additional units was partially exercised by the underwriter on February 24, 2017, resulting in 120,000 additional units being sold at
the same price. In connection with the offering, the Partnership issued 78,980 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. Earnings
per unit is presented for the periods in which the units were outstanding.
4
Table of Contents
On
May 15, 2017, the Partnership completed an equity offering of 5,750,000 Series A Cumulative Redeemable Perpetual Fixed to Floating Rate Preference Units (the "Series A
Preference Units"). On May 16, 2017, the subordination period expired, and the 9,822,358 subordinated units held by GasLog converted on a one-for-one basis into common units and now participate
pro rata with other common units in distributions for available cash. Also on May 16, 2017, GasLog Partners entered into an Equity Distribution Agreement (the "Equity Distribution Agreement")
under which the Partnership may, from time to time, raise equity through the ATM Programme having an aggregate offering price of up to $100.0 million. On November 3, 2017, the
Partnership entered into the Amended and Restated Equity Distribution Agreement to increase the size of the ATM Programme from $100.0 million to $144.0 million. Since the commencement of
the ATM Programme through December 31, 2017, GasLog Partners has issued and received payment for a total of 2,737,405 common units. In connection with the issuance of common units under the
Equity Distribution Agreement during this period, the Partnership also issued 55,866 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest.
-
(4)
-
Upon
the expiration of the subordination period, which occurred on May 16, 2017, the 9,822,358 subordinated units held by GasLog converted on a
one-for-one basis into common units and now participate pro rata with other common units in distributions of available cash. Consequently, earnings have been allocated to subordinated units and the
weighted average number of subordinated units has been calculated only for the applicable period in 2017 during which they were entitled to distributions based on the Partnership Agreement,
i.e. for the three months ended March 31, 2017. For further discussion, see "Item 8. Financial InformationOur Cash Distribution PolicySubordination
Period".
-
(5)
-
The
operating days for our fleet are the total number of days in a given period that the vessels were in our possession less the total number of days
off-hire not recoverable from the insurers. We define days off-hire as days lost to, among other things, operational deficiencies, dry-docking for repairs, maintenance or inspection, equipment
breakdowns, special surveys and vessel upgrades, delays due to accidents, crew strikes, certain vessel detentions or similar problems, our failure to maintain the vessel in compliance with its
specifications and contractual standards or to provide the required crew, or periods of commercial waiting time during which we do not earn charter hire.
-
(6)
-
Non-GAAP Financial Measures
Partnership Performance Results.
As described above, our IFRS Common Control Reported Results are derived from the consolidated financial
statements of the Partnership.
Our
Partnership Performance Results presented below are non-GAAP measures and exclude amounts related to GAS-three Ltd., GAS-four Ltd. and GAS-five Ltd. (the owners of the
GasLog Shanghai
,
the
GasLog Santiago
and the
GasLog Sydney
,
respectively) for the period prior to the closing of the IPO, GAS-sixteen Ltd. and
GAS-seventeen Ltd. (the owners of the
Methane Rita Andrea
and the
Methane Jane Elizabeth
,
respectively) for the period prior to their transfer to the Partnership on September 29, 2014, the amounts related to GAS-nineteen Ltd., GAS-twenty Ltd. and GAS-twenty
one Ltd. (the owners of the
Methane Alison Victoria
, the
Methane Shirley Elisabeth
and the
Methane Heather
Sally
, respectively) for the period prior to their transfer to the Partnership on July 1, 2015, the amounts related to
GAS-seven Ltd. (the owner of the
GasLog Seattle
) for the period prior to its transfer to the Partnership on November 1, 2016, the amounts
related to GAS-eleven Ltd.; (the owner of the
GasLog Greece
) for the period prior to its transfer to the Partnership on May 3, 2017, the
amounts related to GAS-thirteen Ltd. (the owner of the
GasLog Geneva
) for the period prior to its transfer to the Partnership on July 3,
2017 and the amounts related to GAS-eight Ltd. (the owner of the
Solaris
) for the period prior to its transfer to the Partnership on
October 20, 2017. While such amounts are reflected in the Partnership's reported financial statements because the transfers to the Partnership were accounted for as a reorganization of entities
under common control under IFRS, the above mentioned entities were not owned by the Partnership prior to their transfers to the Partnership on the respective dates, and accordingly the Partnership was
not entitled to the cash or results generated in the period prior to such transfers.
The
Partnership Performance Results are non-GAAP financial measures. GasLog Partners believes that these financial measures provide meaningful supplemental information to both management and investors
regarding the financial and operating performance of the Partnership because such presentation is consistent with the calculation of the quarterly distribution and the earnings per unit, which
similarly exclude the results of vessels prior to their transfer to the Partnership. These non-GAAP financial measures should not be viewed in isolation or as substitutes to the equivalent GAAP
measures presented in accordance with IFRS, but should be used in conjunction with the most directly comparable IFRS Common Control Reported Results.
For
the year ended December 31, 2013, prior to the Partnership's incorporation, no results were attributable to the Partnership.
Reconciliation of Partnership Performance Results to IFRS Common Control Reported Results in our Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2014
|
|
Year ended December 31, 2015
|
|
Year ended December 31, 2016
|
|
Year ended December 31, 2017
|
|
|
|
Results
attributable
to GasLog
|
|
Partnership
Performance
Results
|
|
IFRS
Common
Control
Reported
Results
|
|
Results
attributable
to GasLog
|
|
Partnership
Performance
Results
|
|
IFRS
Common
Control
Reported
Results
|
|
Results
attributable
to GasLog
|
|
Partnership
Performance
Results
|
|
IFRS
Common
Control
Reported
Results
|
|
Results
attributable
to GasLog
|
|
Partnership
Performance
Results
|
|
IFRS
Common
Control
Reported
Results
|
|
|
|
Restated
(1)
|
|
|
|
Restated
(1)
|
|
Restated
(1)
|
|
|
|
Restated
(1)
|
|
Restated
(1)
|
|
|
|
Restated
(1)
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars)
|
|
STATEMENT OF PROFIT OR LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
130,551
|
|
$
|
65,931
|
|
$
|
196,482
|
|
$
|
79,574
|
|
$
|
168,927
|
|
$
|
248,501
|
|
$
|
75,919
|
|
$
|
206,424
|
|
$
|
282,343
|
|
$
|
42,398
|
|
$
|
269,071
|
|
$
|
311,469
|
|
Vessel operating costs
|
|
|
(26,209
|
)
|
|
(12,226
|
)
|
|
(38,435
|
)
|
|
(18,926
|
)
|
|
(33,656
|
)
|
|
(52,582
|
)
|
|
(11,945
|
)
|
|
(43,479
|
)
|
|
(55,424
|
)
|
|
(4,323
|
)
|
|
(55,692
|
)
|
|
(60,015
|
)
|
Voyage expenses and commissions
|
|
|
(1,763
|
)
|
|
(817
|
)
|
|
(2,580
|
)
|
|
(1,211
|
)
|
|
(2,102
|
)
|
|
(3,313
|
)
|
|
(1,001
|
)
|
|
(2,841
|
)
|
|
(3,842
|
)
|
|
(527
|
)
|
|
(3,377
|
)
|
|
(3,904
|
)
|
Depreciation
|
|
|
(29,081
|
)
|
|
(13,352
|
)
|
|
(42,433
|
)
|
|
(19,712
|
)
|
|
(35,981
|
)
|
|
(55,693
|
)
|
|
(16,540
|
)
|
|
(45,230
|
)
|
|
(61,770
|
)
|
|
(9,533
|
)
|
|
(58,193
|
)
|
|
(67,726
|
)
|
General and administrative expenses
|
|
|
(2,466
|
)
|
|
(4,591
|
)
|
|
(7,057
|
)
|
|
(1,415
|
)
|
|
(10,383
|
)
|
|
(11,798
|
)
|
|
(1,408
|
)
|
|
(11,219
|
)
|
|
(12,627
|
)
|
|
(639
|
)
|
|
(13,869
|
)
|
|
(14,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
|
|
|
71,032
|
|
|
34,945
|
|
|
105,977
|
|
|
38,310
|
|
|
86,805
|
|
|
125,115
|
|
|
45,025
|
|
|
103,655
|
|
|
148,680
|
|
|
27,376
|
|
|
137,940
|
|
|
165,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial costs
|
|
|
(24,786
|
)
|
|
(15,206
|
)
|
|
(39,992
|
)
|
|
(13,716
|
)
|
|
(21,789
|
)
|
|
(35,505
|
)
|
|
(19,392
|
)
|
|
(30,187
|
)
|
|
(49,579
|
)
|
|
(8,686
|
)
|
|
(44,916
|
)
|
|
(53,602
|
)
|
Financial income
|
|
|
28
|
|
|
23
|
|
|
51
|
|
|
11
|
|
|
24
|
|
|
35
|
|
|
26
|
|
|
179
|
|
|
205
|
|
|
26
|
|
|
972
|
|
|
998
|
|
(Loss)/gain on interest rate swaps
|
|
|
(13,336
|
)
|
|
(5,218
|
)
|
|
(18,554
|
)
|
|
(5,895
|
)
|
|
|
|
|
(5,895
|
)
|
|
(10,460
|
)
|
|
3,623
|
|
|
(6,837
|
)
|
|
|
|
|
121
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(38,094
|
)
|
|
(20,401
|
)
|
|
(58,495
|
)
|
|
(19,600
|
)
|
|
(21,765
|
)
|
|
(41,365
|
)
|
|
(29,826
|
)
|
|
(26,385
|
)
|
|
(56,211
|
)
|
|
(8,660
|
)
|
|
(43,823
|
)
|
|
(52,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
$
|
32,938
|
|
$
|
14,544
|
|
$
|
47,482
|
|
$
|
18,710
|
|
$
|
65,040
|
|
$
|
83,750
|
|
$
|
15,199
|
|
$
|
77,270
|
|
$
|
92,469
|
|
$
|
18,716
|
|
|
94,117
|
|
|
112,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA.
EBITDA is defined as earnings before interest income and expense, gain/loss on interest rate swaps, taxes, depreciation and
amortization. EBITDA, which is a non-GAAP financial measure, is used as a supplemental financial measure by management and external users of financial statements, such as our investors, to assess our
operating performance. The Partnership believes that this non-GAAP financial measure assists our management and investors by increasing the comparability of our performance from period to period. The
Partnership believes that including EBITDA assists our management and investors in (i) understanding and analyzing the results of our operating and business performance, (ii) selecting
between investing in us and other investment alternatives and
5
Table of Contents
(iii) monitoring
our ongoing financial and operational strength in assessing whether to purchase and/or to continue to hold our common units. This increased comparability is achieved by
excluding the potentially disparate effects between periods of financial costs, gains/losses on interest rate swaps, taxes, depreciation and amortization, which items are affected by various and
possibly changing financing methods, financial market conditions, capital structure and historical cost basis and which items may significantly affect results of operations between periods.
EBITDA
has limitations as an analytical tool and should not be considered as an alternative to, or as a substitute for, or superior to profit, profit from operations, earnings per unit or any other
measure of operating performance presented in accordance with IFRS. Some of these limitations include the fact that it does not reflect (i) our cash expenditures or future requirements for
capital expenditures or contractual commitments, (ii) changes in, or cash requirements for our working capital needs and (iii) the significant interest expense, or the cash requirements
necessary to service interest or principal payments, on our debt. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced
in the future and EBITDA does not reflect any cash requirements for such replacements.
EBITDA
excludes some, but not all, items that affect profit and these measures may vary among other companies. Therefore, EBITDA as presented herein may not be comparable to similarly titled measures
of other companies. The following table reconciles EBITDA to profit, the most directly comparable IFRS financial measure, for the periods presented.
EBITDA
is presented on the basis of IFRS Common Control Reported Results and Partnership Performance Results. Partnership Performance Results are non-GAAP measures. The difference between IFRS Common
Control Reported Results and Partnership Performance Results are results attributable to GasLog as set out in the reconciliation above.
Reconciliation of Profit to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS Common Control Reported Results Year ended
December 31,
|
|
Partnership Performance Results Year ended
December 31,
|
|
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
Restated
(1)
|
|
Restated
(1)
|
|
Restated
(1)
|
|
Restated
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars)
|
|
Profit for the year
|
|
$
|
36,844
|
|
$
|
47,482
|
|
$
|
83,750
|
|
$
|
92,469
|
|
$
|
112,833
|
|
$
|
|
|
$
|
14,544
|
|
$
|
65,040
|
|
$
|
77,270
|
|
$
|
94,117
|
|
Depreciation
|
|
|
12,591
|
|
|
42,433
|
|
|
55,693
|
|
|
61,770
|
|
|
67,726
|
|
|
|
|
|
13,352
|
|
|
35,981
|
|
|
45,230
|
|
|
58,193
|
|
Financial costs
|
|
|
12,460
|
|
|
39,992
|
|
|
35,505
|
|
|
49,579
|
|
|
53,602
|
|
|
|
|
|
15,206
|
|
|
21,789
|
|
|
30,187
|
|
|
44,916
|
|
Financial income
|
|
|
(48
|
)
|
|
(51
|
)
|
|
(35
|
)
|
|
(205
|
)
|
|
(998
|
)
|
|
|
|
|
(23
|
)
|
|
(24
|
)
|
|
(179
|
)
|
|
(972
|
)
|
(Gain)/loss on interest rate swaps
|
|
|
(10,927
|
)
|
|
18,554
|
|
|
5,895
|
|
|
6,837
|
|
|
(121
|
)
|
|
|
|
|
5,218
|
|
|
|
|
|
(3,623
|
)
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
50,920
|
|
$
|
148,410
|
|
$
|
180,808
|
|
$
|
210,450
|
|
$
|
233,042
|
|
$
|
|
|
$
|
48,297
|
|
$
|
122,786
|
|
$
|
148,885
|
|
$
|
196,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable cash flow.
Distributable cash flow means EBITDA, on the basis of the Partnership Performance Results, after considering
financial costs for the year, including realized loss on interest rate swaps and excluding amortization of loan fees, estimated dry-docking and replacement capital reserves established by the
Partnership and accrued distributions on preference units, whether or not declared. Estimated dry-docking and replacement capital reserves represent capital expenditures required to renew and maintain
over the long-term the operating capacity of, or the revenue generated by, our capital assets. The Partnership believes that Distributable cash flow, which is a non-GAAP financial measure, is useful
because it is a quantitative standard used by investors in publicly-traded partnerships to assess their ability to make quarterly cash distributions. Our calculation of Distributable cash flow may not
be comparable to that reported by other companies.
Distributable
cash flow has limitations as an analytical tool and should not be considered as an alternative to, or substitute for, or superior to profit or loss, profit or loss from operations,
earnings per unit or any other measure of operating performance presented in accordance with IFRS.
The
table below reconciles Distributable cash flow and Cash distributions declared to EBITDA (Partnership Performance Results).
Reconciliation of EBITDA to Distributable Cash Flow*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership Performance Results
Year ended December 31,
|
|
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
(in thousands of U.S. dollars)
|
|
EBITDA (Partnership Performance Results)
*
|
|
$
|
122,786
|
|
$
|
148,885
|
|
$
|
196,133
|
|
Financial costs (excluding amortization of loan fees) and realized loss on interest rate swaps
|
|
|
(19,484
|
)
|
|
(26,929
|
)
|
|
(41,722
|
)
|
Dry-docking capital reserve
|
|
|
(8,338
|
)
|
|
(8,829
|
)
|
|
(12,234
|
)
|
Replacement capital reserve
|
|
|
(22,710
|
)
|
|
(29,467
|
)
|
|
(33,877
|
)
|
Paid and accrued preferred equity distribution
|
|
|
|
|
|
|
|
|
(7,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Distributable cash flow
|
|
|
72,254
|
|
|
83,660
|
|
|
100,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves
**
|
|
|
(16,067
|
)
|
|
(14,244
|
)
|
|
(14,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions***
|
|
$
|
56,187
|
|
$
|
69,416
|
|
$
|
86,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
The
reconciliation of Profit to EBITDA on the basis of Partnership Performance Results is presented in Note 6 above.
-
**
-
Refers
to reserves (other than the dry-docking and replacement capital reserves) which have been established for the proper conduct of the business of the Partnership
and its subsidiaries (including reserves for future capital expenditures and for anticipated future credit needs of the Partnership and its subsidiaries).
-
***
-
Refers
to cash distributions made since the Partnership's IPO. It excludes payments of dividends due to GasLog before vessels were acquired by the Partnership.
-
(7)
-
Does
not reflect a distribution of $10.7 million declared in January 2015 in respect of the fourth quarter of 2014. Cash distribution paid
includes $9.8 million dividend due to GasLog which was declared in 2013 and excludes $8.8 million dividend due to GasLog which was declared in 2014, in both cases prior to the
contribution of the relevant vessels to the Partnership.
-
(8)
-
Does
not reflect a distribution of $15.7 million declared in January 2016 in respect of the fourth quarter of 2015. Cash distribution paid
includes $8.8 million dividend due to GasLog which was declared in 2014 and excludes $7.8 million dividend due to GasLog which was declared in 2015, in both cases prior to the
contribution of the relevant vessels to the Partnership.
-
(9)
-
Does
not reflect a distribution of $19.6 million declared in January 2017 and paid in February 2017, in respect of the fourth quarter of 2016.
6
Table of Contents
-
(10)
-
Cash
distribution paid includes $7.8 million and $3.0 million of dividends due to GasLog which were declared in 2015 prior to the
contribution of the
GasLog Seattle
and the
Solaris,
respectively to the Partnership.
-
(11)
-
Does
not reflect a distribution of $22.8 million declared in January 2018 in respect of the fourth quarter of 2017.
-
(12)
-
Does
not reflect a distribution of $10.7 million declared in January 2015 and paid in February 2015, in respect of the fourth quarter of 2014.
-
(13)
-
Does
not reflect a distribution of $15.7 million declared in January 2016 and paid in February 2016, in respect of the fourth quarter of 2015.
B. Capitalization and Indebtedness
The following table sets forth our capitalization as of December 31, 2017:
This
information should be read in conjunction with "Item 5. Operating and Financial Review and Prospects", and our consolidated financial statements and the notes thereto
included in "Item 18. Financial Statements".
|
|
|
|
|
|
|
As of
December 31, 2017
|
|
|
|
(in thousands of
U.S. dollars)
|
|
Debt:
(1)
|
|
|
|
|
Borrowingscurrent portion
|
|
$
|
103,829
|
|
Borrowingsnon-current portion
|
|
|
1,051,767
|
|
|
|
|
|
|
Total debt
|
|
|
1,155,596
|
|
|
|
|
|
|
Partners' Equity:
|
|
|
|
|
Common unitholders: 41,002,121 units issued and outstanding
|
|
|
752,456
|
|
General partner: 836,779 units issued and outstanding
|
|
|
11,781
|
|
Series A Preference unitholders: 5,750,000 units issued and outstanding
|
|
|
139,321
|
|
Incentive distribution rights
|
|
|
6,596
|
|
|
|
|
|
|
Total Partners' Equity
|
|
|
910,154
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,065,750
|
|
|
|
|
|
|
-
(1)
-
All of our bank debt has been incurred by our vessel-owning subsidiaries. See "Item 5. Operating and
Financial Review and ProspectsB. Liquidity and Capital ResourcesCredit Facilities" for more information about our credit facilities.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Inherent in Our Business
Our fleet consists of 12 LNG carriers. The charters on three of the vessels expire in 2018 and two further
charters expire in 2019. On redelivery, the vessels may operate in the short-term spot market until we successfully secure new multi-year time charters. Operating vessels in the spot market could have
a material adverse effect on our business, results of operations and financial condition and could significantly reduce or eliminate our ability to pay distributions on our common or Preference Units.
The
GasLog Shanghai
, the
GasLog Santiago
and the
GasLog
Sydney
are due to come off charter in May 2018, July 2018 and September 2018, respectively, each plus or minus 30 days. In addition, the
Methane Jane Elizabeth
is due to come off charter in October 2019 and the
Methane Alison Victoria
in
December 2019, each plus or minus 30 days. We continue to pursue opportunities for new multi-year charters with third parties for these vessels, but we may have difficulty in securing new
charters at attractive rates and durations. In the interim, we may have exposure to the volatile spot market which is highly competitive and subject to significant price fluctuations. If we are unable
to re-deploy a vessel, we will not receive any revenues from that vessel, and we will be required to pay expenses necessary to maintain the vessel in proper operating condition as well as to service
the debt attached to that vessel.
7
Table of Contents
Failure to secure new multi-year charters could adversely affect our future liquidity, results of operations and cash flows, including cash available for
distribution to unitholders, as well as our ability to meet certain of our debt covenants. A sustained decline in charter rates could also adversely affect the market value of our vessels, on which
certain of the ratios and financial covenants with which we are required to comply are based. Vessel values may fluctuate substantially, which could result in an impairment charge, could impact our
compliance with the covenants in our loan agreements and, if the values are lower at a time when we are attempting to dispose of vessels, could cause us to incur a loss.
In 2018, three of our vessels are scheduled to be dry-docked. During the scheduled dry-docking, two of the
three vessels will undertake additional work which is expected to enhance their operational performance. The dry-docking time for these two vessels will be longer than the usual time required for a
normal dry-docking. Due to the small size of our fleet, any overrun of the dry-docking or delay or cost overrun caused by the additional work could have a material adverse effect on our business,
results of operations and financial condition and could significantly reduce or eliminate our ability to pay distributions on our common or Preference Units.
Dry-dockings of our vessels require significant expenditures and result in loss of revenue as our vessels are off-hire during such period. Any
significant increase in either the number of off-hire days or in the costs of any repairs or investments carried out during the dry-docking period could have a material adverse effect on our
profitability and our cash flows. Given the potential for unforeseen issues arising during dry-docking, we may not be able to predict accurately the time required to dry-dock any of our vessels. If
more than one of our ships is required to be out of service at the same time, or if a ship is dry-docked longer than expected or if the cost of repairs is greater than budgeted, our results of
operations and our cash flows, including cash available for distribution to unitholders, could be adversely affected. The upcoming dry-dockings of our vessels are expected to be carried out in 2018 (3
vessels), 2019 (1 vessel), 2020 (3 vessels), 2021 (4 vessels) and 2023 (1 vessel).
We currently derive all our revenues from a single customer and will continue to depend on one customer for
nearly all of our revenues after our expected acquisition of additional vessels from GasLog. The loss of this customer would result in a significant loss of revenues and could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
We currently derive all of our revenues from wholly-owned subsidiaries of Shell. Following the expected acquisition of additional vessels from
GasLog, Shell, via its subsidiaries, will continue to be our sole customer, as all five GasLog vessels over which we have options to acquire will be chartered to Shell. We could lose our customer or
the benefits of our time charter arrangements for many different reasons. The customer may be unable or unwilling to make charter hire or other payments to us because of a deterioration in its
financial condition, commercial disputes with us, long term force majeure events or otherwise. If our customer terminates its charters, chooses not to re-charter our ships or is unable to perform
under its charters and we are not able to find replacement charters on similar terms, we will suffer a loss of revenues. Such a loss could have a material adverse effect on our business, financial
condition, results of operations and cash flows, including cash available for distribution to unitholders.
8
Table of Contents
Our relationship with GasLog is key to our operations and to our future growth. If GasLog fails to maintain a
drop down pipeline of vessels with multi-year charters and to support our operations and commercial endeavours, this would have a material adverse effect on our business, results of operations and
financial condition and could significantly reduce or eliminate our ability to pay distributions on our common or Preference Units.
Our current drop-down pipeline is composed solely of GasLog vessels. Our future growth, at this time, is dependent on a continuing relationship
with GasLog and other factors related to that relationship, some of which are beyond our control including our ability to:
-
-
maintain a drop-down pipeline of existing or newbuild vessels from GasLog. GasLog's increased exposure to the spot market and potential lack of
success in winning new charters for existing or newbuild vessels may limit the availability of vessels with multi-year charters that we are able to acquire; or
-
-
obtain the required consents from lenders and charterers for the acquisition of vessels from GasLog.
We
and our operating subsidiaries have entered into various service agreements with GasLog and its subsidiaries, including GasLog LNG Services. Under such agreements GasLog and its
subsidiaries provide certain administrative, financial and other services, and provide substantially all of our crew, technical management services (including vessel maintenance, periodic dry-docking,
cleaning and painting, performing work required by regulations and human resources and financial services) and other advisory and commercial management services, including the sourcing of new
contracts and renewals of existing contracts. Our operational success and ability to execute our growth strategy depend significantly upon the satisfactory performance of these services by GasLog and
its subsidiaries. Our business will be harmed if such subsidiaries fail to perform these services satisfactorily or if they stop providing these services to us or our operating subsidiaries.
Our
ability to compete for new charters and expand our customer relationships depends largely on our ability to leverage our relationship with GasLog and its reputation and relationships
in the shipping industry. If GasLog suffers material damage to its reputation or relationships, it may harm our ability to:
-
-
renew existing charters upon their expiration;
-
-
obtain new charters;
-
-
successfully interact with shipyards;
-
-
obtain financing on commercially acceptable terms;
-
-
maintain access to capital under the revolving credit facility with GasLog entered into in April 2017, or the "New Sponsor Credit Facility";
-
-
maintain satisfactory relationships with suppliers and other third parties;
-
-
recruit and retain suitably qualified and experienced seafarers and shore-based employees through GasLog pursuant to the services agreements we
have entered into with GasLog. We currently rely on GasLog's ability to attract, hire, train and retain highly skilled and qualified personnel on our behalf in a highly competitive market;
-
-
continue to meet technical and safety performance standards.
If
our ability to do any of the things described above is impaired, it would have a material adverse effect on our business, financial condition, results of operations and ability to
make cash distributions to our unitholders.
9
Table of Contents
Our future growth depends on our ability to maintain our relationship with our existing customer, establish
new customer relationships and obtain new time charter contracts, for which we face substantial competition from other established companies with significant resources, as well as potential new
entrants.
One of our principal objectives is to enter into additional multi-year, fixed-rate charters. The process of obtaining multi-year, fixed rate
charters for LNG carriers is highly competitive and generally involves an intensive screening process by potential new customers and the submission of competitive bids, all of which can often extend
for several months. We believe LNG carrier time charters are awarded based upon a variety of factors relating to the ship and the ship operator, including:
-
-
size, age, technical specifications and condition of the ship;
-
-
efficiency of ship operation;
-
-
LNG shipping experience and quality of ship operations;
-
-
shipping industry relationships and reputation for customer service;
-
-
technical ability and reputation for operation of highly specialized ships;
-
-
quality and experience of officers and crew;
-
-
safety record;
-
-
the ability to finance ships at competitive rates and financial stability generally;
-
-
relationships with shipyards and the ability to get suitable berths;
-
-
construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications; and
-
-
competitiveness of the bid in terms of overall price.
We
expect substantial competition from a number of experienced companies. Competitors may include other independent ship owners, state-sponsored entities and major energy companies that
own and operate LNG carriers, all of whom may compete with independent owners by using their own fleets to carry LNG for third parties. Some of these competitors have significantly greater financial
resources and larger fleets than we or GasLog have, and some have particular relationships that may provide them with competitive advantages. A number of marine transportation companies, including
companies with strong reputations and extensive resources and experience, have entered the LNG transportation market in recent years and there are other ship owners and managers who may also attempt
to participate in the LNG market in the future. This increased competition may cause greater price competition for time charters. As a result, we may be unable to expand our relationships with
existing customers or to obtain new customers on a profitable basis, which could have a material adverse effect on our business, financial condition, results of operations and cash flows, including
cash available for distribution to unitholders. We may not be successful in executing any future growth plans, and we may incur significant expenses and losses in connection with such growth efforts.
Our future capital needs are uncertain and we may need to raise additional funds in the future.
We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next
12 months. However, we may need to raise additional capital to maintain, replace and expand the operating capacity of our fleet and fund our operations. Our future funding requirements will
depend on many factors, including the cost and timing of vessel acquisitions, the cost of retrofitting or modifying existing ships as a result of technological advances, changes in applicable
environmental or other regulations or standards, customer requirements or otherwise. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by
10
Table of Contents
our
financial condition at the time of any such financing or offering, as well as by adverse market conditions that are beyond our control.
Obtaining
additional funds on acceptable terms may not be possible. If we raise additional funds by issuing equity or equity-linked securities, our unitholders may experience dilution or
reduced distributions per unit. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt or to pay distributions. Any debt or additional
equity financing raised may contain unfavorable terms to us or our unitholders. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope
of, or eliminate some or all of our fleet expansion plans. Any of these factors could have a material adverse effect on
our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders.
We may not have sufficient cash from operations following the establishment of cash reserves and payment of
fees and expenses to enable us to pay the quarterly distributions on our common units, Preference Units and general partner units or to redeem our Preference Units.
Our board of directors makes determinations regarding the payment of distributions in its sole discretion and in accordance with our partnership
agreement and applicable law. There is no guarantee that we will continue to make distributions to our unitholders in the future (including cumulative distributions payable with respect to our
Preference Units). The markets in which we operate our vessels are volatile and we cannot predict with certainty the amount of cash, if any, that will be available for distribution in any period. We
may not have sufficient cash from operations to pay the minimum quarterly distribution of $0.375 per unit on our common units and general partner units or to pay the quarterly preference distributions
on our Preference Units. The amount of cash we can distribute on our units depends upon the amount of cash we generate from our operations, which may fluctuate from quarter to quarter based on the
risks described in this section, including, among other things:
-
-
the rates we obtain from our charters;
-
-
the expiration of charter contracts;
-
-
the charterers' options to terminate charter contracts;
-
-
the number of off-hire days for our fleet and the timing of, and number of days required for, dry-docking of vessels;
-
-
the level of our operating costs, such as the cost of crews, vessel maintenance and insurance;
-
-
the supply of LNG carriers;
-
-
prevailing global and regional economic and political conditions; and
-
-
the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business.
In
addition, the actual amount of cash available for distribution will depend on other factors, including:
-
-
the level of capital expenditures we make, including for maintaining or replacing vessels and complying with regulations;
-
-
our debt service requirements, including fluctuations in interest rates, and restrictions on distributions contained in our debt instruments;
-
-
our financial covenants especially as concerns the minimum liquidity that we are required to maintain at all times;
11
Table of Contents
-
-
the level of debt we will incur to fund future acquisitions, including if we exercise our options to purchase any additional vessels from
GasLog;
-
-
fluctuations in our working capital needs;
-
-
our ability to make, and the level of, working capital borrowings; and
-
-
the amount of any cash reserves, including reserves for future maintenance and replacement capital expenditures, working capital and other
matters, established by our board of directors, which cash reserves are not subject to any specified maximum dollar amount.
The
amount of cash we generate from our operations may differ materially from our profit or loss for a specified period, which will be affected by non-cash items. As a result of this and
the other factors mentioned above, we may make cash distributions during periods in which we record losses and may not make cash distributions during periods when we record a profit.
Our ability to grow and to meet our financial needs may be adversely affected by our cash distribution
policy.
Our cash distribution policy, which is consistent with our partnership agreement, requires us to distribute all of our available cash (as
defined in our partnership agreement) each
quarter. Accordingly, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations.
In
determining the amount of cash available for distribution, our board of directors approves the amount of cash reserves to set aside, including reserves for future maintenance and
replacement capital expenditures, working capital and other matters. We also rely upon external financing sources, including commercial borrowings, to fund our capital expenditures. To the extent we
do not have sufficient cash reserves or are unable to obtain financing, our cash distribution policy may significantly impair our ability to meet our financial needs or to grow.
Any charter termination could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Our charterer has the right to terminate a ship's time charter in certain circumstances, such as:
-
-
loss of the ship or damage to it beyond repair;
-
-
if the ship is off-hire for any reason other than scheduled dry-docking for a period exceeding 90 consecutive days, or for more than
90 days in any one-year period;
-
-
defaults by us in our obligations under the charter; or
-
-
the outbreak of war or hostilities involving two or more major nations, such as the United States or the People's Republic of China, that would
materially and adversely affect the trading of the ship for a period of at least 30 days.
A
termination right under one ship's time charter would not automatically give the charterer the right to terminate its other charter contracts with us. However, a charter termination
could materially affect our relationship with the customer and our reputation in the LNG shipping industry, and in some circumstances the event giving rise to the termination right could potentially
impact multiple charters. Accordingly, the existence of any right of termination could have a material adverse effect on our business, financial condition, results of operations and cash flows,
including cash available for distribution to unitholders.
12
Table of Contents
Our future performance and ability to secure future time charters depends on continued growth in LNG
production and demand for LNG and LNG shipping.
Our future performance, including our ability to profitably expand our fleet, will depend on continued growth in LNG production and the demand
for LNG and LNG shipping. A complete LNG project includes natural gas production, liquefaction, storage, regasification and distribution facilities, in addition to the marine transportation of LNG.
Increased infrastructure investment has led to an expansion of LNG production capacity in recent years, but material delays in the construction of new liquefaction facilities could constrain the
amount of LNG available for shipping, reducing ship utilization. The rate of growth of the LNG industry has fluctuated due to several factors, including the rate of global economic growth,
fluctuations in global commodity prices, including natural gas, oil and coal as well as other sources of energy, and energy and environmental policy in markets which produce and/or consume LNG.
Continued growth in LNG production and demand for LNG and LNG shipping could be negatively affected by a number of factors, including:
-
-
prices for crude oil, petroleum products and natural gas;
-
-
the cost of natural gas derived from LNG relative to the cost of natural gas generally and to the cost of alternative fuels, including
renewables, and the impact of increases in the cost of natural gas derived from LNG on consumption of LNG;
-
-
increases in the production levels of lower cost domestic natural gas in natural gas consuming markets, which could further depress prices for
natural gas in those markets and make LNG uneconomical;
-
-
increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing pipelines, or the
development of new pipeline systems in markets we may serve;
-
-
infrastructure constraints such as delays in the construction of liquefaction or regasification facilities, the inability of project owners or
operators to obtain governmental approvals to construct or operate LNG facilities, as well as community or political action group resistance to new LNG infrastructure due to concerns about the
environment, safety and terrorism;
-
-
increases in interest rates or other events that may affect the availability of sufficient financing for LNG projects on commercially
reasonable terms;
-
-
negative global or regional economic or political conditions, particularly in LNG consuming regions, which could reduce energy consumption or
its growth;
-
-
new taxes or regulations affecting LNG production or liquefaction that make LNG production less attractive;
-
-
labor or political unrest or military conflicts affecting existing or proposed areas of LNG production or regasification;
-
-
any significant explosion, spill or other incident involving an LNG facility or carrier; or
-
-
regional, national or international energy policies that constrain the production or consumption of hydrocarbons including natural gas.
In
recent years, global crude oil prices were very volatile. Any decline in oil prices can depress natural gas prices and lead to a narrowing of the difference in pricing between
geographic regions, which can adversely affect the length of voyages in the spot LNG shipping market and the spot rates and medium-term charter rates for charters which commence in the near future.
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A continuation of the recent volatility in natural gas and oil prices may adversely affect our growth
prospects and results of operations.
Natural gas prices are volatile and are affected by numerous factors beyond our control, including but not limited to the
following:
-
-
price and availability of crude oil and petroleum products;
-
-
worldwide and regional demand for and price of natural gas;
-
-
the cost of exploration, development, production, transportation and distribution of natural gas;
-
-
expectations regarding future energy prices for both natural gas and other sources of energy, including renewable energy sources;
-
-
the level of worldwide LNG production and exports;
-
-
government laws and regulations, including but not limited to environmental protection laws and regulations;
-
-
local and international political, economic and weather conditions;
-
-
political and military conflicts; and
-
-
the availability and cost of alternative energy sources, including alternate sources of natural gas in gas importing and consuming countries.
Given
the significant global natural gas and crude oil price volatility referenced above, and with five vessels currently scheduled to come off charter during 2018 and 2019, a
continuation of volatility in natural gas or oil prices may adversely affect our future business, results of operations and financial
condition and our ability to make cash distributions, as a result of, among other things:
-
-
a reduction in exploration for or development of new natural gas reserves or projects, or the delay or cancellation of existing projects as
energy companies lower their capital expenditures budgets, which may reduce our growth opportunities;
-
-
low oil prices negatively affecting the market price of natural gas, to the extent that natural gas prices are benchmarked to the price of
crude oil, in turn negatively affecting the economics of potential new LNG production projects, which may reduce our growth opportunities;
-
-
high oil prices negatively affecting the competitiveness of natural gas to the extent that natural gas prices are benchmarked to the price of
crude oil;
-
-
lower demand for vessels of the types we own and operate, which may reduce available charter rates and revenue to us upon redeployment of our
vessels following expiration or termination of existing contracts or upon the initial chartering of vessels;
-
-
customers potentially seeking to renegotiate or terminate existing vessel contracts, or failing to extend or renew contracts upon expiration;
-
-
the inability or refusal of customers to make charter payments to us due to financial constraints or otherwise; or
-
-
declines in vessel values, which may result in losses to us upon vessel sales or impairment charges against our earnings and could impact our
compliance with the covenants in our loan agreements.
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If the short-term or spot LNG carrier charter market continues to expand and results in reduced opportunities
to secure multi-year charters for our vessels, our revenues and cash flows may become more volatile and may decline following expiration or early termination of our current charter arrangements.
Most shipping requirements for new LNG projects continue to be secured on a multi-year basis, though the level of spot voyages and short-term
time charters of less than 12 months in duration has grown in the past few years. If the short-term or spot charter market continues to expand and results in reduced opportunities to secure
multi-year charters for our vessels, we may enter into short-term time charters upon expiration or early termination of our current charters. As a result, our revenues and cash flows may become more
volatile. In addition, an active short-term or spot charter market may require us to enter into charters based on changing market prices, as opposed to contracts based on fixed rates, which could
result in a decrease in our revenues and cash flows, including cash available for distribution to unitholders, if we enter into charters during periods when the market price for shipping LNG is
depressed.
Ship values may fluctuate substantially, which could result in an impairment charge, impact our compliance
with the covenants in our loan agreements and, if the values are lower at a time when we are attempting to dispose of ships, cause us to incur a loss.
Values for ships can fluctuate substantially over time due to a number of different factors,
including:
-
-
prevailing economic conditions in the natural gas and energy markets;
-
-
a substantial or extended decline in demand for LNG;
-
-
the level of worldwide LNG production and exports;
-
-
changes in the supply-demand balance of the global LNG carrier fleet;
-
-
changes in prevailing charter hire rates;
-
-
the physical condition of the ship;
-
-
the size, age and technical specifications of the ship; and
-
-
the cost of retrofitting or modifying existing ships, as a result of technological advances in ship design or equipment, changes in applicable
environmental or other regulations or standards, customer requirements or otherwise.
If
the market value of our ships declines, we may be required to record an impairment charge in our financial statements, which could adversely affect our results of operations. See
"Item 5. Operating and Financial Review and ProspectsB. Liquidity and Capital RecoursesCritical Accounting PoliciesImpairment of Vessels". Deterioration
in market value of our ships may trigger a breach of some of the covenants contained in
our credit facilities. If we do breach such covenants and we are unable to remedy the relevant breach, our lenders could accelerate our indebtedness and seek to foreclose on the ships in our fleet
securing those credit facilities. In addition, if a charter contract expires or is terminated by the customer, we may be unable to re-deploy the affected ships at attractive rates and, rather than
continue to incur costs to maintain and finance them, we may seek to dispose of them. Any foreclosure on our ships, or any disposal by us of a ship at a time when ship prices have fallen, could result
in a loss and could materially and adversely affect our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.
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Due to our lack of diversification, adverse developments in the LNG market and/or in the LNG transportation
industry could adversely affect our business, particularly if such developments occur at a time when we are seeking a new charter.
We rely exclusively on the cash flow generated from charters for our LNG vessels. Due to our lack of diversification, an adverse development in
the LNG market and/or the LNG transportation industry could have a significantly greater impact on our business, particularly if such developments occur at a time when our ships are not under charter
or nearing the end of their charters, than if we maintained more diverse assets or lines of businesses.
An oversupply of LNG carriers may lead to a reduction in the charter hire rates we are able to obtain when
seeking charters in the future which could adversely affect our results of operations and cash flows.
Driven in part by an increase in LNG production capacity, the market supply of LNG carriers has been increasing as a result of the construction
of new ships. The development of liquefaction projects in the United States and the anticipation of exports beginning in early 2016 drove significant ordering activity. Whilst we saw a decline in
ordering of newbuilds during 2017, as of December 31, 2017, the LNG carrier order book totaled 95 vessels, and the delivered fleet stood at 428 vessels. This and any future expansion of the
global LNG carrier fleet in excess of the demand for LNG shipping may have a negative impact on charter hire rates, ship utilization and ship values.
If
charter hire rates are lower when we are seeking new time charters, our revenues and cash flows, including cash available for distribution to unitholders, may decline.
Further technological advancements and other innovations affecting LNG carriers could reduce the charter hire
rates we are able to obtain when seeking new employment for existing vessels and this could adversely impact the value of our assets and our results of operations and cash flows.
The charter rates, asset value and operational life of an LNG carrier are determined by a number of factors, including the ship's efficiency,
operational flexibility and physical life. Efficiency is reflected in unit freight costs ("UFC") which are driven by the size of the vessel, its fuel economy and the rate at which LNG in the cargo
tanks naturally evaporates ("boil-off ratio" or "BOR"). Flexibility is primarily driven by the size of the ship and includes the ability to enter harbors, utilize related docking facilities and pass
through canals and straits. Physical life is related to the original design and construction, the ongoing maintenance and the impact of operational stresses on the asset. Ship, cargo containment and
engine designs are continually evolving. As newer designs are developed and accepted in the market, these newer vessels may be more efficient or more flexible or have longer physical lives than our
ships. Competition from these more technologically advanced LNG carriers compared to our vessels with older technology could adversely affect our ability to charter or re-charter our ships and the
charter hire rates we will be able to secure when we seek to charter or re-charter our ships, and could also reduce the resale value of our ships. This could adversely affect our revenues and cash
flows, including cash available for distribution to unitholders.
Changes in global and regional economic conditions could adversely impact our business, financial condition,
results of operations and cash flows.
Weak global or regional economic conditions may negatively impact our business, financial condition, results of operations and cash flows in
ways that we cannot predict. Our ability to expand our fleet will be dependent on our ability to obtain financing to fund the acquisition of additional ships. In addition, uncertainty about current
and future global economic conditions may cause our customers to defer projects in response to tighter credit, decreased capital availability and declining customer confidence, which may negatively
impact the demand for our ships and services and could also result in defaults under our current charters. Global financial markets and economic conditions have been volatile in recent years and
remain subject to significant vulnerabilities. A tightening of the credit
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markets
may further negatively impact our operations by affecting the solvency of our suppliers or customers, which could lead to disruptions in delivery of supplies such as equipment for conversions,
cost increases for supplies, accelerated payments to suppliers, customer bad debts or reduced revenues. Similarly, such market conditions could affect lenders participating in our financing
agreements, making them unable to fulfill their commitments and obligations to us. Any reductions in activity owing to such conditions or failure by our customers, suppliers or lenders to meet their
contractual obligations to us could adversely affect our business, financial position, results of operations and ability to make cash distributions to our unitholders.
GasLog
LNG Services, our vessels' management company, and a substantial number of its staff are located in Greece. A return of economic instability in Greece could disrupt our operations
and have an adverse effect on our business. We have sought to minimize this risk and preserve operational stability by carefully developing staff deployment plans, an information technology recovery
site, an alternative ship to shore communications plan and funding mechanisms outside of Greece. While we believe these plans, combined with the international nature of our operations, will mitigate
the impact of any disruption of operations in Greece, we cannot assure you that these plans will be effective in all circumstances.
We must make substantial capital expenditures to maintain and expand our fleet, which will reduce cash
available for distribution. In addition, each quarter we are required to deduct estimated maintenance and replacement capital expenditures from operating surplus, which may result in less cash
available to unitholders than if actual maintenance and replacement capital expenditures were deducted.
We must make substantial capital expenditures to maintain and replace, over the long-term, the operating capacity of our fleet. Maintenance and
replacement capital expenditures from operating surplus totaled $46.1 million for the year ended December 31, 2017. We estimate that future maintenance and replacement capital
expenditures will average approximately $52.8 million per full year, including potential costs related to replacing current vessels at the end of their useful lives. Maintenance and replacement
capital expenditures include capital expenditures associated with (i) the removal of a vessel from the water for inspection, maintenance and/or repair of submerged parts (or dry-docking) and
(ii) modifying an existing vessel or acquiring a new vessel, to the extent these expenditures are incurred to maintain, enhance or replace the operating capacity of our fleet. These
expenditures could vary significantly from quarter to quarter and could increase as a result of changes in:
-
-
the cost of labor and materials;
-
-
the time required to carry out any investments;
-
-
customer requirements;
-
-
the size of our fleet;
-
-
the cost of replacement vessels;
-
-
length of charters;
-
-
governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment;
-
-
competitive standards; and
-
-
the age of our ships.
Significant
capital expenditures, including to maintain and replace, over the long-term, the operating capacity of our fleet, may reduce or eliminate the amount of cash available for
distribution to our unitholders. Our partnership agreement requires our board of directors to deduct estimated, rather
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than
actual, maintenance and replacement capital expenditures from operating surplus each quarter in an effort to reduce fluctuations in operating surplus (as defined in our partnership agreement).
The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus is subject to review and change by our conflicts committee at least once a year. In years when
estimated maintenance and replacement capital expenditures are higher than actual maintenance and replacement capital expenditures, the amount of cash available for distribution to unitholders will be
lower than if actual maintenance and replacement capital expenditures were deducted from operating surplus. If our board of directors underestimates the appropriate level of estimated maintenance and
replacement capital expenditures, we may have less cash available for distribution in future periods when actual capital expenditures exceed our previous estimates.
Our ability to obtain additional debt financing for future acquisitions of ships or to refinance our existing
debt may depend on the creditworthiness of our charterers and the terms of our future charters.
Our ability to borrow against the ships in our existing fleet and any ships we may acquire in the future largely depends on the value of the
ships, which in turn depends in part on charter hire rates, charter lengths and the ability of our charterers to comply with the terms of their charters. The actual or perceived credit quality of our
charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional ships and to refinance our existing debt
as balloon payments come due, or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing or committing to financing on unattractive terms could
have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders.
The derivative contracts used to hedge our exposure to fluctuations in interest rates could result in
reductions in our partners' equity as well as charges against our profit.
We enter into interest rate swaps from time to time for purposes of managing our exposure to fluctuations in interest rates applicable to
floating rate indebtedness. As of December 31, 2017, we had four interest rate swaps in place with a notional amount of $470.0 million. None of the existing derivative contracts were
designated as a cash flow hedging instrument. The changes in their fair value are recognized in our statement of profit or loss. Changes in the fair value of any derivative contracts that do not
qualify for treatment as cash flow hedges for financial reporting purposes would affect, among other things, our profit and earnings per unit and would affect compliance with the market value adjusted
net worth covenants in our credit facilities. For future interest rate swaps that may be designated as cash flow hedging instruments, the changes in the fair value of the contracts will be recognized
in our statement of other comprehensive income as cash flow hedge gains or losses for the period, and could affect compliance with the market value adjusted net worth covenants in our credit
facilities.
There
is no assurance that our derivative contracts will provide adequate protection against adverse changes in interest rates or that our bank counterparties will be able to perform
their obligations. In addition, as a result of the implementation of new regulation of the swaps markets in the United States, the European Union and elsewhere over the next few years, the cost and
availability of interest rate and currency hedges may increase or suitable hedges may not be available.
Our earnings and business are subject to the credit risk associated with our contractual counterparties.
We will enter into, among other things, time charters and other contracts with our customers, credit facilities and commitment letters with
banks, insurance contracts and interest rate swaps. Such agreements subject us to counterparty credit risk. For example, all of our vessels are chartered to, and we received all of our total revenues
for the year ended December 31, 2017 from, subsidiaries of Shell.
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The
ability and willingness of each of our counterparties to perform its obligations under a contract with us will depend upon a number of factors that are beyond our control and may
include, among other things, general economic conditions, the condition of the natural gas and LNG markets and charter hire rates. Should a counterparty fail to honor its obligations under agreements
with us, we could sustain significant losses which in turn could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for
distribution to unitholders.
Our debt levels may limit our flexibility in obtaining additional financing, pursuing other business
opportunities and paying distributions to unitholders.
Our level of debt could have important consequences to us, including the following:
-
-
our ability to obtain additional financing, if necessary, for working capital, capital expenditures, ship acquisitions or other purposes may be
impaired or such financing may not be available on favorable terms;
-
-
we will need a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would
otherwise be available for operations, future business opportunities and distributions to unitholders;
-
-
the requirement on us to maintain minimum levels of liquidity as a percentage of our total debt, reducing the funds that would otherwise be
available for operations, future business opportunities and distributions to unitholders;
-
-
our debt level may make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our industry or the
economy generally;
-
-
our debt level may limit our flexibility in responding to changing business and economic conditions; and
-
-
if we are unable to satisfy the restrictions included in any of our financing agreements or are otherwise in default under any of those
agreements, as a result of our debt levels or otherwise, we will not be able to make cash distributions to you, notwithstanding our stated cash distribution policy.
Our
ability to service our debt depends upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial,
business, regulatory and other factors, some of which are beyond our control. As of December 31, 2017, we had an aggregate of $1,155.6 million of indebtedness outstanding under our
credit facilities, of which $103.8 million is repayable within one year. See "Item 5. Operating and Financial Review and ProspectsB. Liquidity and Capital Resources".
If
our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our
business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection. We may not
be able to effect any of these remedies on satisfactory terms, or at all.
Financing agreements containing operating and financial restrictions may restrict our business and financing
activities. A failure by us to meet our obligations under our financing agreements would result in an event of default under such credit facilities which could lead to foreclosure on our ships.
The operating and financial restrictions and covenants in our credit facilities and any future financing agreements could adversely affect our
ability to finance future operations or capital needs or
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to
engage, expand or pursue our business activities. For example, the financing agreements may restrict the ability of us and our subsidiaries to:
-
-
incur or guarantee indebtedness;
-
-
change ownership or structure, including mergers, consolidations, liquidations and dissolutions;
-
-
make dividends or distributions;
-
-
make certain negative pledges and grant certain liens;
-
-
sell, transfer, assign or convey assets;
-
-
make certain investments; and
-
-
enter into a new line of business.
In
addition, such financing agreements may require us to comply with certain financial ratios and tests, including, among others, maintaining a minimum liquidity, maintaining positive
working capital, ensuring that EBITDA exceeds interest payable (any amounts payable for interest rate swap and debt installments calculated on a four-quarter rolling average basis), maintaining a
minimum collateral value, and maintaining a minimum book equity ratio. Our ability to comply with the restrictions and covenants, including financial ratios and tests, contained in such financing
agreements is dependent on future performance and may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions
deteriorate, our ability to comply with these covenants may be impaired.
If
we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness or in current or future debt financing agreements, there could be a default
under the terms of those agreements. If a default occurs under these agreements, lenders could terminate their commitments to lend and/or accelerate the outstanding loans and declare all amounts
borrowed due and payable. We have pledged our vessels as security for our outstanding indebtedness. If our lenders were to foreclose on our vessels in the event of a default, this may adversely affect
our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. If any of these events occur, we cannot guarantee that our assets will be sufficient
to repay in full all of our outstanding indebtedness, and we may be unable to find alternative financing. Even if we could obtain alternative financing, that financing might not be on terms that are
favorable or acceptable. Any of these events would adversely affect our ability to make distributions to our unitholders and cause a decline in the market price of our common units and Preference
Units. See "Item 5. Operating and Financial Review and ProspectsB. Liquidity and Capital ResourcesCredit Facilities".
Restrictions in our debt agreements may prevent us or our subsidiaries from paying distributions.
The payment of principal and interest on our debt reduces cash available for distribution to us and on our units. In addition, our credit
facilities prohibit the payment of
distributions to our common unitholders or our preference unitholders upon the occurrence of the following events, among others:
-
-
failure to pay any principal, interest, fees, expenses or other amounts when due;
-
-
breach or lapse of any insurance with respect to vessels securing the facilities;
-
-
breach of certain financial covenants;
-
-
failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;
-
-
default under other indebtedness;
-
-
bankruptcy or insolvency events;
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-
-
failure of any representation or warranty to be correct;
-
-
a change of ownership of the borrowers or GasLog Partners Holdings; and
-
-
a material adverse effect.
Furthermore,
we expect that our future financing agreements will contain similar provisions. For more information regarding these financing agreements, see "Item 5. Operating and
Financial Review and ProspectsB. Liquidity and Capital ResourcesCredit Facilities".
The failure to consummate or integrate acquisitions in a timely and cost-effective manner could have an
adverse effect on our financial condition and results of operations.
Acquisitions that expand our fleet are an important component of our strategy. Under the omnibus agreement, we currently have the option to
purchase from GasLog: (i) the
GasLog Glasgow
and the
GasLog Gibraltar
within 36 months
after GasLog notifies our board of directors of their acceptance by their charterers, and (ii) the
Methane Becki Anne
and the
Methane Julia Louise
within 36 months after the completion of their acquisition by GasLog on March 31, 2015, which options will expire in
March 2018 if not extended, and (iii) the
GasLog Houston
within 30 days after GasLog notifies us that the vessel has commenced its
multi-year charter. In each case, our option to purchase is at fair market value as determined pursuant to the omnibus agreement. In addition, according to the terms of the omnibus agreement, GasLog
will be required to offer us the opportunity to purchase each of Hull Nos. 2130, 2131, 2801 and 2213 within 30 days of the commencement of their respective charters.
We
will not be obligated to purchase any of these vessels at the applicable determined price, and, accordingly, we may not complete the purchase of any of such vessels. Furthermore, if
we are able to agree on a price with GasLog, there are no assurances that we will be able to obtain adequate financing on terms that are acceptable to us. In light of recent master limited partnership
("MLP") market volatility, it may be more difficult for us to complete an accretive acquisition.
We
believe that other acquisition opportunities may arise from time to time, and any such acquisition could be significant. Any acquisition of a vessel or business may not be profitable
at or after the time of acquisition and may not generate cash flow sufficient to justify the investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business,
financial condition, results of operations and ability to make cash distributions to our unitholders, including risks that we may:
-
-
fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;
-
-
be unable to attract, hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
-
-
decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions;
-
-
significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;
-
-
incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or
-
-
incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.
In
addition, unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we generally inspect existing vessels prior to purchase, such an
inspection would normally not provide us with as much knowledge of a vessel's condition as we would possess if it had
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been
built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated
since they were built. These costs could decrease our cash flow and reduce our liquidity.
Certain
acquisition and investment opportunities may not result in the consummation of a transaction. In addition, we may not be able to obtain acceptable terms for the required
financing for any such acquisition or investment that arises. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our
common units or Preference Units. Our future acquisitions could present a number of risks, including the risk of incorrect assumptions regarding the future results of acquired vessels or businesses or
expected cost reductions or other synergies expected to be realized as a result of acquiring vessels or businesses, the risk of failing to successfully and timely integrate the operations or
management of any acquired vessels or businesses and the risk of diverting management's attention from existing operations or other priorities. We may also be subject to additional costs related to
compliance with various international laws in connection with such acquisition. If we fail to consummate and integrate our acquisitions in a timely and cost-effective manner, our business, financial
condition, results of operations and cash available for distribution could be adversely affected.
We may experience operational problems with vessels that reduce revenues and increase costs. Any limitation
in the availability or operation of our ships could have a material adverse effect on our business, financial condition, results of operations and cash flows, which effect would be amplified by the
size of our fleet.
Our fleet consists of 12 LNG carriers that are in operation. LNG carriers are complex and their operations are technically challenging. Marine
transportation operations are subject to mechanical risks and problems. Operational problems may lead to loss of revenues or higher than anticipated operating expenses or require additional capital
expenditures. If any of our ships are unable to generate revenues for any significant period of time for any reason, including unexpected periods of off-hire or early charter termination (which could
result from damage to our ships), our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders, could be materially and adversely
affected. The impact of any limitation in the operation of our ships or any early charter termination would be amplified during the period prior to acquisition of additional vessels, as a substantial
portion of our cash flows and income is dependent on the revenues earned by the chartering of our 12 LNG carriers in operation. In addition, the costs of ship repairs are
unpredictable and can be substantial. In the event of repair costs that are not covered by our insurance policies, we may have to pay for such repair costs, which would decrease our earnings and cash
flows. Any of these results could harm our business, financial condition, results of operations and ability to make cash distributions to our unitholders.
If we cannot meet our charterers' quality and compliance requirements we may not be able to operate our
vessels profitably which could have an adverse effect on our future performance, results of operations, cash flows and financial position.
Customers, and in particular those in the LNG industry, have a high and increasing focus on quality and compliance standards with their
suppliers across the entire value chain, including the shipping and transportation segment. Our continuous compliance with these standards and quality requirements is vital for our operations. Related
risks could materialize in multiple ways, including a sudden and unexpected breach in quality and/or compliance concerning one or more vessels and/or a continuous decrease in the quality concerning
one or more LNG carriers occurring over time. Moreover, continuously increasing requirements from LNG industry constituents can further complicate our ability to meet the standards. Any noncompliance
by us, either suddenly or over a period of time, on one or more LNG carriers, or an increase in requirements by our charterers above and beyond what we deliver, may have a material adverse effect on
our future performance, results of operations, cash flows and financial position.
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Delays in deliveries of GasLog's newbuilding vessels could adversely affect our business.
We may expand our fleet by acquiring newly built vessels from GasLog pursuant to the omnibus agreement. The delivery of any newbuildings could
be delayed, which would adversely affect our future growth, which is expected to be partly based on the acquisition of vessels from GasLog.
The
completion and delivery of newbuildings could be delayed because of:
-
-
quality or engineering problems;
-
-
changes in governmental regulations or maritime self-regulatory organization standards;
-
-
work stoppages or other labor disturbances at the shipyard;
-
-
bankruptcy or other financial crisis of the shipbuilder;
-
-
a backlog of orders at the shipyard;
-
-
political or economic disturbances;
-
-
weather interference or a catastrophic event, such as a major earthquake or fire;
-
-
requests for changes to the original vessel specifications;
-
-
shortages of or delays in the receipt of necessary construction materials, such as steel;
-
-
the inability to finance the construction or conversion of the vessels; or
-
-
the inability to obtain requisite permits or approvals.
Risks associated with operating ocean-going ships could affect our business and reputation.
The operation of ocean-going ships carries inherent risks. These risks include the possibility of:
-
-
marine disaster;
-
-
piracy;
-
-
cyber attacks;
-
-
environmental accidents;
-
-
adverse weather conditions;
-
-
grounding, fire, explosions and collisions;
-
-
cargo and property loss or damage;
-
-
business interruptions caused by mechanical failure, human error, war, terrorism, disease and quarantine, or political action in various
countries;
-
-
work stoppages or other labor problems with crew members serving on our ships.
An
accident involving any of our owned ships could result in any of the following:
-
-
death or injury to persons, loss of property or environmental damage;
-
-
delays in the delivery of cargo;
-
-
loss of revenues from termination of charter contracts;
-
-
governmental fines, penalties or restrictions on conducting business;
-
-
litigation with our employees, customers or third parties;
-
-
higher insurance rates; and
-
-
damage to our reputation and customer relationships generally.
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Any
of these results could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to
unitholders.
If capital expenditures are financed through cash from operations or by issuing debt or equity securities,
our ability to make cash distributions may be diminished, our financial leverage could increase or our unitholders may be diluted.
Use of cash from operations to expand, enhance or maintain our fleet will reduce cash available for distribution to unitholders. Our ability to
obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such
financing or offering, as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our
failure to obtain the funds for future capital expenditures could have a material adverse effect on our business, financial condition, results of operations and ability to make cash distributions to
our unitholders. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash distributions to unitholders. In addition, incurring
additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant unitholder dilution and would increase the
aggregate amount of cash required to maintain our current level of quarterly distributions to common and preference unitholders, both of which could have a material adverse effect on our ability to
make cash distributions.
We are subject to certain risks with respect to our relationship with GasLog, and failure of GasLog to comply
with certain of its financial covenants under its debt instruments could, among other things, limit or prevent us from acquiring future vessels from GasLog, which could have a material adverse effect
on our business, financial condition, results of operations and cash flows.
Certain of GasLog's existing debt instruments impose operating and financial restrictions on GasLog, including financial maintenance covenants.
GasLog's ability to meet certain operating and financial restrictions in its existing debt instruments is dependent in part on the charter rates which it obtains for its vessels. The charter rates
available for spot/short-term charters of LNG carriers have been at historically low levels for the last several years and although recent months have seen higher rates, we cannot be certain that this
rate increase will be sustained. GasLog is also active in the LNG shipping spot market through its participation in The Cool Pool Limited with Golar LNG Ltd. and Dynagas Ltd. However, if
GasLog should fail to enter into additional short-term or multi-year charters or should fail to successfully take other steps which would reduce debt service requirements and/or improve EBITDA, it may
be required to seek a waiver under its bank credit facilities. GasLog continuously monitors and manages its covenant compliance. Under GasLog's credit facilities, as is typical with secured credit
facilities generally, a default by the borrower permits the lenders to exercise remedies as secured creditors which, if such a default was to occur, could include foreclosing on GasLog vessels. Our
future growth, which is expected to be based on the acquisition of vessels from GasLog, would also be adversely affected by such a default event if it was to occur. We are also dependent on GasLog for
the provision of administrative, commercial and ship management services.
Additionally,
any default by GasLog under its corporate guarantees could result in a default under the loan facilities related to the
Methane Alison
Victoria
, the
Methane Shirley Elisabeth
, the
Methane Heather Sally,
the
GasLog Seattle,
the
GasLog Greece
, the
GasLog Geneva
and
the
Solaris.
We may have difficulty obtaining consents that are necessary to acquire vessels with an existing charter or a
financing agreement.
Under the omnibus agreement entered into with GasLog in connection with the IPO, we have certain options and other rights to acquire vessels
with existing charters from GasLog. The omnibus agreement provides that our ability to consummate the acquisition of any such vessels from GasLog will
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be
subject to obtaining all relevant consents including governmental authorities and other non-affiliated third parties to those agreements. In particular, with respect to GasLog's existing vessels,
we would need the consent of the existing charterers and lenders. While GasLog will be obligated to use reasonable efforts to obtain any such consents, we cannot assure you that in any particular case
the necessary consent will be obtained from the required parties including the governmental authorities and charterer, lender or other entity.
We are a holding company and we depend on the ability of our subsidiaries to distribute funds to us in order
to satisfy our financial obligations and to make distributions to unitholders.
We are a holding company. Our subsidiaries conduct all of our operations and own all of our operating assets, including our ships. We have no
significant assets other than the equity interests in our subsidiaries. As a result, our ability to pay our obligations and to make distributions to unitholders depends entirely on our subsidiaries
and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, or by the law
of its jurisdiction of incorporation which regulates the payment of distributions. If we are unable to obtain funds from our subsidiaries, our board of directors may exercise its discretion not to
make distributions to unitholders.
Compliance with safety and other requirements imposed by classification societies may be very costly and may
adversely affect our business.
The hull and machinery of every commercial LNG carrier must be classed by a classification society. The classification society certifies that
the ship has been built and subsequently maintained in accordance with the applicable rules and regulations of that classification society. Moreover, every ship must comply with all applicable
international conventions and the regulations of the ship's flag state as verified by a classification society. Finally, each ship must successfully undergo periodic surveys, including annual,
intermediate and special surveys performed under the classification society's rules.
If
any ship does not maintain its class, it will lose its insurance coverage and be unable to trade, and the ship's owner will be in breach of relevant covenants under its financing
arrangements. Failure to maintain the class of one or more of our ships could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash
available for distribution to unitholders.
The LNG shipping industry is subject to substantial environmental and other regulations, which may
significantly limit our operations or increase our expenses.
Our operations are materially affected by extensive and changing international, national, state and local environmental laws, regulations,
treaties, conventions and standards which are in force in international waters, or in the jurisdictional waters of the countries in which our ships operate and in the countries in which our ships are
registered. These requirements include those relating to equipping and operating ships, providing security and minimizing or addressing impacts on the environment from ship operations. We may incur
substantial costs in complying with these requirements, including costs for ship modifications and changes in operating procedures. We also could incur substantial costs, including clean-up costs,
civil and criminal penalties and sanctions, the suspension or termination of operations and third-party claims as a result of violations of, or liabilities under, such laws and regulations.
In
addition, these requirements can affect the resale value or useful lives of our ships, require a reduction in cargo capacity, necessitate ship modifications or operational changes or
restrictions or lead to decreased availability of insurance coverage for environmental matters. They could further result in the denial of access to certain jurisdictional waters or ports or detention
in certain ports. We are required to obtain governmental approvals and permits to operate our ships. Delays in obtaining such
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governmental
approvals may increase our expenses, and the terms and conditions of such approvals could materially and adversely affect our operations.
Additional
laws and regulations may be adopted that could limit our ability to do business or increase our operating costs, which could materially and adversely affect our business. For
example, new or amended legislation relating to ship recycling, sewage systems, emission control (including emissions of greenhouse gases and other pollutants) as well as ballast water treatment and
ballast water handling may be adopted. The United States has recently enacted ballast water management system legislation and regulations that require more stringent controls of air and water
emissions from ocean-going ships. Such legislation or regulations may require additional capital expenditures or operating expenses (such as increased costs for low-sulfur fuel) in order for us to
maintain our ships' compliance with international and/or national regulations. We also may become subject to additional laws and regulations if we enter new markets or trades.
We
also believe that the heightened environmental, quality and security concerns of insurance underwriters, regulators and charterers will generally lead to additional regulatory
requirements, including enhanced risk assessment and security requirements, as well as greater inspection and safety requirements on all LNG carriers in the marine transportation market. These
requirements are likely to add incremental costs to our operations, and the failure to comply with these requirements may affect the ability of our ships to obtain and, possibly, recover from,
insurance policies or to obtain the required certificates for entry into the different ports where we operate.
Some
environmental laws and regulations, such as the U.S. Oil Pollution Act of 1990, or "OPA", provide for potentially unlimited joint, several and/or strict liability for owners,
operators and demise or bareboat charterers for oil pollution and related damages. OPA applies to discharges of any oil from a ship in U.S. waters, including discharges of fuel and lubricants from an
LNG carrier, even if the ships do not carry oil as cargo. In addition, many states in the United States bordering a navigable waterway have enacted legislation providing for potentially unlimited
strict liability without regard to fault for the discharge of pollutants within their waters. We also are subject to other laws and conventions outside the United States that provide for an owner or
operator of LNG carriers to bear strict liability for pollution, such as the Convention on Limitation of Liability for Maritime Claims of 1976, or the "London Convention".
Some
of these laws and conventions, including OPA and the London Convention, may include limitations on liability. However, the limitations may not be applicable in certain
circumstances, such as where a spill is caused by a ship owner's or operator's intentional or reckless conduct. These limitations are also subject to periodic updates and may otherwise be amended in
the future.
Compliance
with OPA and other environmental laws and regulations also may result in ship owners and operators incurring increased costs for additional maintenance and inspection
requirements, the development of contingency arrangements for potential spills, obtaining mandated insurance coverage and meeting financial responsibility requirements.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risks of climate change, a number of countries and the International Maritime Organization, or "IMO", have adopted, or
are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from ships. These regulatory measures may include adoption of cap and trade regimes, carbon taxes, increased
efficiency standards and incentives or mandates for renewable energy. Although emissions of greenhouse gases from international shipping currently are not subject to agreements under the United
Nations Framework Convention on Climate Change, such as the "Kyoto Protocol" and the "Paris Agreement", a new treaty may be adopted in the future that includes additional restrictions on shipping
emissions to those already adopted under the International Convention for the Prevention of Marine Pollution from Ships, or the "MARPOL
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Convention".
Compliance with future changes in laws and regulations relating to climate change could increase the costs of operating and maintaining our ships and could require us to install new
emission controls, as well as acquire allowances, pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth
opportunities may also be adversely affected.
Adverse
effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also have an effect on
demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and natural gas in the future or create
greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have significant financial and operational adverse impacts on our
business that we cannot predict with certainty at this time.
We operate our ships worldwide, which could expose us to political, governmental and economic instability
that could harm our business.
Because we operate our ships in the geographic areas where our customers do business, our operations may be affected by political, governmental
and economic conditions in the countries where our ships operate or where they are registered. Any disruption caused by these factors could harm our business, financial condition, results of
operations and cash flows, including cash available for distribution to unitholders. In particular, our ships frequent LNG terminals in countries including Egypt, Nigeria, Equatorial Guinea and
Trinidad, as well as transit through the Gulf of Aden and the Strait of Malacca. Economic, political and governmental conditions in these and other regions have from time to time resulted in military
conflicts, terrorism, attacks on ships, mining of waterways, piracy and other efforts to disrupt shipping. Future hostilities or other political instability in the geographic regions where we operate
or may operate could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders. In addition,
our business could also be harmed by tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries in the Middle East, Southeast Asia or elsewhere as
a result of terrorist attacks, hostilities or diplomatic or political pressures that limit trading activities with those countries.
Our insurance may be insufficient to cover losses that may occur to our property or result from our
operations which could adversely affect our results of operations and cash flows.
The operation of any ship includes risks such as mechanical failure, personal injury, collision, fire, contact with floating objects, property
loss or damage, cargo loss or damage and business interruption due to a number of reasons, including political circumstances in foreign countries, hostilities and labor strikes. In addition, there is
always an inherent possibility of a marine disaster, including collision, explosion, spills and other environmental mishaps, and other liabilities arising from owning, operating or managing ships in
international trade. Although we carry protection and indemnity, hull and machinery and loss of hire insurance covering our ships consistent with industry standards, we can give no assurance that we
are adequately insured against all risks or that our insurers will pay a particular claim. We also may be unable to procure adequate insurance coverage at commercially reasonable rates in the future.
Even if our insurance coverage is adequate to cover our losses, we may not be able to obtain a timely replacement ship in the event of a loss of a ship. Any uninsured or underinsured loss could harm
our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.
In
addition, some of our insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional
payments over and above budgeted premiums if member claims exceed association reserves.
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Terrorist attacks, international hostilities, political change and piracy could adversely affect our
business, financial condition, results of operations and cash flows.
Terrorist attacks, piracy and the current conflicts in the Middle East and elsewhere, as well as other current and future conflicts and
political change, may adversely affect our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders. The continuing hostilities in
the Middle East may lead to additional acts of terrorism, further regional conflicts, other armed actions around the world and civil disturbance in the United States or elsewhere, which may contribute
to further instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us, or at all.
In
the past, political conflicts have also resulted in attacks on ships, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region.
Acts of terrorism and piracy have also affected ships trading in regions such as the South China Sea and the Gulf of Aden. Any terrorist attacks targeted at ships may in the future negatively
materially affect our business, financial condition, results of operations and cash flows and could directly impact our ships or our customers.
We
currently employ armed guards onboard certain vessels operating in areas that may be prone to hijacking or terrorist attacks. The presence of armed guards may increase the risk of
damage, injury or loss of life in connection with any attacks on our vessels, in addition to increasing crew costs.
We
may not be adequately insured to cover losses from acts of terrorism, piracy, regional conflicts and other armed actions, including losses relating to the employment of armed guards.
LNG
facilities, shipyards, ships, pipelines and gas fields could be targets of future terrorist attacks or piracy. Any such attacks could lead to, among other things, bodily injury or
loss of life, as well as damage to the ships or other property, increased ship operating costs, including insurance costs, reductions in the supply of LNG and the inability to transport LNG to or from
certain locations. Terrorist attacks, war or other events beyond our control that adversely affect the production, storage or transportation of LNG to be shipped by us could entitle our customers to
terminate our charter contracts in certain circumstances, which would harm our cash flows and our business.
Terrorist
attacks, or the perception that LNG facilities and LNG carriers are potential terrorist targets, could materially and adversely affect expansion of LNG infrastructure and the
continued supply of LNG. Concern that LNG facilities may be targeted for attack by terrorists has contributed significantly to local community and environmental group resistance to the construction of
a number of LNG facilities, primarily in North America. If a terrorist incident involving an LNG facility or LNG carrier did occur, in addition to the possible effects identified in the previous
paragraph, the incident may adversely affect the construction of additional LNG facilities and could lead to the temporary or permanent closing of various LNG facilities currently in operation.
A cyber-attack could materially disrupt the Partnership's business.
The Partnership relies on information technology systems and networks, the majority of which are provided by GasLog, in its operations and
administration of its business. The Partnership's business operations, or those of GasLog, could be targeted by individuals or groups seeking to sabotage or disrupt the Partnership's or GasLog's
information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt the Partnership's operations, including the safety of its operations, or lead to
unauthorized release of information or alteration of information on its systems. Any such attack or other breach of the Partnership's information technology systems could have a material adverse
effect on the Partnership's business and results of operations.
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In the future, the ships we own could be required to call on ports located in countries that are subject to
restrictions imposed by the United States and other governments.
The United States and other governments and their agencies impose sanctions and embargoes on certain countries and maintain lists of countries
they consider to be state sponsors of terrorism. For example, in 2010, the United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or "CISADA", which expanded the
scope of the former Iran Sanctions Act. Among other things, CISADA expanded the application of the prohibitions imposed by the U.S. government to non-U.S. companies, such as us, and limits the ability
of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products, as well as LNG.
In
2012, President Obama signed Executive Order 13608, which prohibits foreign persons from violating or attempting to violate, or causing a violation of, any sanctions in effect against
Iran, or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. The Secretary of
the Treasury may prohibit any transactions or dealings, including any U.S. capital markets financing, involving any person found to be in violation of Executive Order 13608. Also in 2012, the U.S.
enacted the Iran Threat Reduction and Syria Human Rights Act of 2012, or the "ITRA", which created new sanctions and strengthened existing sanctions. Among other things, the ITRA intensifies existing
sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or petrochemical sector. The ITRA also includes a provision requiring the President of the United
States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns,
operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had
actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a
person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of such person's
vessels from U.S. ports for up to two years. The ITRA also includes a requirement that issuers of securities must disclose to the SEC in their annual and quarterly reports filed after
February 6, 2013 whether the issuer or "any affiliate" has "knowingly" engaged in certain sanctioned activities involving Iran during the timeframe covered by the report. Finally, in January
2013, the U.S. enacted the Iran Freedom and Counter-Proliferation Act of 2012 or the "IFCA", which expanded the scope of U.S. sanctions on any person that is part of Iran's energy, shipping or
shipbuilding sector and operators of ports in Iran, and imposes penalties on any person who facilitates or otherwise knowingly provides significant financial, material or other support to these
entities.
On
January 16, 2016, the United States suspended certain sanctions against Iran applicable to non-U.S. companies, such as us, pursuant to the nuclear agreement reached between
Iran, China, France, Germany, Russia, the United Kingdom, the United States and the European Union. To implement these changes, beginning on January 16, 2016, the United States waived
enforcement of many of the sanctions against Iran's energy and petrochemical sectors described above, among other things, including certain provisions of CISADA, ITRA, and IFCA. While non-U.S.
companies may now engage in certain business or trade with Iran that was previously prohibited, the U.S. has the ability to reimpose sanctions against Iran.
Although
the ships we own have not called on ports in countries subject to sanctions or embargoes or in countries identified as state sponsors of terrorism, including Iran, North Korea
and Syria, we cannot assure you that these ships will not call on ports in these countries in the future. While we intend to maintain compliance with all sanctions and embargoes applicable to us, U.S.
and international sanctions and embargo laws and regulations do not necessarily apply to the same countries or proscribe the same activities, which may make compliance difficult. Additionally, the
scope of certain laws may be
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unclear,
and these laws may be subject to changing interpretations and application and may be amended or strengthened from time to time, including by adding or removing countries from the proscribed
lists. Violations of sanctions and embargo laws and regulations could result in fines or other
penalties and could result in some investors deciding, or being required, to divest their investment, or not to invest, in us.
Failure to comply with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other anti-bribery
legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
We operate our ships worldwide, requiring our ships to trade in countries known to have a reputation for corruption. We are committed to doing
business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices
Act of 1977, or the "FCPA", and the Bribery Act 2010 of the United Kingdom or the "UK Bribery Act". We are subject, however, to the risk that we, our affiliated entities or our or their respective
officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA and the UK Bribery Act. Any such violation could result in
substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial
condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is
expensive and can consume significant time and attention of our senior management.
Changing laws and evolving reporting requirements could have an adverse effect on our business.
Changing laws, regulations and standards relating to reporting requirements, including the European Union General Data Protection Regulation
("GDPR"), may create additional compliance requirements for us. To maintain high standards of corporate governance and public disclosure, GasLog has invested in, and intends to continue to invest in,
reasonably necessary resources to comply with evolving standards.
GDPR
broadens the scope of personal privacy laws to protect the rights of European Union citizens and requires organizations to report on data breaches within 72 hours and be
bound by more stringent rules for obtaining the consent of individuals on how their data can be used. GDPR will become enforceable on May 25, 2018 and non-compliance may expose entities to
significant fines or other regulatory claims which could have an adverse effect on our business, financial conditions, results of operations, cash flows and ability to pay distributions.
Reliability of suppliers may limit our ability to obtain supplies and services when needed.
We rely, and will in the future rely, on a significant supply of consumables, spare parts and equipment to operate, maintain, repair and upgrade
our fleet of ships. Delays in delivery or unavailability of supplies could result in off-hire days due to consequent delays in the repair and maintenance of our fleet. This would negatively impact our
revenues and cash flows. Cost increases could also negatively impact our future operations, although the impact of significant cost increases may be mitigated to some extent with respect to the
vessels that are employed under charter contracts with automatic periodic adjustment provisions or cost review provisions.
Governments could requisition our ships during a period of war or emergency, resulting in loss of earnings.
The government of a jurisdiction where one or more of our ships are registered could requisition for title or seize our ships. Requisition for
title occurs when a government takes control of a ship and
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becomes
its owner. Also, a government could requisition our ships for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated
charter rates. Generally, requisitions occur during a period of war or emergency, although governments may elect to requisition ships in other circumstances. Although we would expect to be entitled to
government compensation in the event of a requisition of one or more of our ships, the amount and timing of payments, if any, would be uncertain. A government requisition of one or more of our ships
would result in off-hire days under our time charters and may cause us to breach covenants in certain of our credit facilities, and could have a material adverse effect on our business, financial
condition, results of operations and cash flows, including cash available for distribution to unitholders.
Maritime claimants could arrest our ships, which could interrupt our cash flows.
Crew members, suppliers of goods and services to a ship, shippers or receivers of cargo and other parties may be entitled to a maritime lien
against a ship for unsatisfied debts, claims or
damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a ship. The arrest or attachment of one or more of our ships which is not timely discharged could cause us to
default on a charter or breach covenants in certain of our credit facilities and, to the extent such arrest or attachment is not covered by our protection and indemnity insurance, could require us to
pay large sums of money to have the arrest or attachment lifted. Any of these occurrences could have a material adverse effect on our business, financial condition, results of operations and cash
flows, including cash available for distribution to unitholders.
Additionally,
in some jurisdictions, such as the Republic of South Africa, under the "sister ship" theory of liability, a claimant may arrest both the ship that is subject to the
claimant's maritime lien and any "associated" ship, which is any ship owned or controlled by the same owner. Claimants could try to assert "sister ship" liability against one ship in our fleet for
claims relating to another of our ships.
We may be subject to litigation that could have an adverse effect on us.
We may in the future be involved from time to time in litigation matters. These matters may include, among other things, contract disputes,
personal injury claims, environmental claims or proceedings, toxic tort claims, employment matters and governmental claims for taxes or duties, as well as other litigation that arises in the ordinary
course of our business. We cannot predict with certainty the outcome of any claim or other litigation matter. The ultimate outcome of any litigation matter and the potential costs associated with
prosecuting or defending such lawsuits, including the diversion of management's attention to these matters, could have an adverse effect on us and, in the event of litigation that could reasonably be
expected to have a material adverse effect on us, could lead to an event of default under certain of our credit facilities.
Risks Inherent in an Investment in Us
GasLog and its affiliates may compete with us.
Pursuant to the omnibus agreement between us and GasLog, GasLog and its controlled affiliates (other than us, our general partner and our
subsidiaries) generally have agreed not to acquire, own, operate or charter certain LNG carriers operating under charters of five full years or
more. The omnibus agreement, however, contains significant exceptions that may allow GasLog or any of its controlled affiliates to compete with us, which could harm our business. For example, these
exceptions result in GasLog not being restricted from: acquiring, owning, operating or chartering Non-Five-Year Vessels; acquiring a non-controlling equity ownership, voting or profit participation
interest in any company, business or pool of assets; acquiring, owning, operating or chartering a Five-Year Vessel that GasLog would otherwise be restricted from owning if we are not willing or able
to acquire such vessel
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from
GasLog within the periods set forth in the omnibus agreement; or owning or operating any Five-Year Vessel that GasLog owns on the closing date of the IPO and that was not part of our fleet as of
such date. See "Item 7. Major Unitholders and Related Party TransactionsB. Related Party TransactionsOmnibus AgreementNoncompetition" for a detailed
description of those exceptions and the definitions of "Five-Year Vessel" and "Non-Five-Year Vessel".
Common unitholders have limited voting rights, and our partnership agreement restricts the voting rights of
unitholders owning more than 4.9% of our common units.
Unlike the holders of common stock in a corporation, holders of common units have only limited voting rights on matters affecting our business.
We will hold a meeting of the limited partners every year to elect one or more members of our board of directors and to vote on any other matters that are properly brought before the meeting. Our
general partner has appointed four of our seven directors and the common unitholders elected the remaining three directors. Four of our directors meet the independence standards of the NYSE, and three
of the four also qualify as independent of GasLog under our partnership agreement, so as to be eligible for membership on our conflicts committee. If our general partner exercises its right to
transfer the power to elect a majority of our directors to the common unitholders, an additional director will thereafter be elected by our common unitholders. Our general partner may exercise this
right in order to permit us to claim, or continue to claim, an exemption from U.S. federal income tax under Section 883 of the U.S. Internal Revenue Code of 1986, as amended, or the "Code". See
"Item 4. Information on the PartnershipB. Business OverviewTaxation of the Partnership".
The
partnership agreement also contains provisions limiting the ability of common unitholders to call meetings or to acquire information about our operations, as well as other provisions
limiting the common unitholders' ability to influence the manner or direction of management. Unitholders have no right to elect our general partner, and our general partner may not be removed except
by a vote of the holders of at least 66
2
/
3
% of the outstanding common units, including any units owned by our general partner and its affiliates, voting together as a single class.
Our
partnership agreement further restricts unitholders' voting rights by providing that if any person or group owns beneficially more than 4.9% of any class of units (other than
Preference Units) then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a
meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board of directors), determining the presence of a quorum or for other similar
purposes, unless required by law.
Effectively,
this means that the voting rights of any common unitholders not entitled to vote on a specific matter will be redistributed pro rata among the other common unitholders. Our
general partner, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to the 4.9% limitation, except with respect to voting their
common units in the election of the elected directors.
GasLog and our general partner own a controlling interest in us and have conflicts of interest and limited
fiduciary and contractual duties to us and our unitholders, which may permit them to favor their own interests to your detriment.
GasLog currently owns limited partnership units representing a 23.9% partnership interest and a 2.0% general partner interest in us, and owns
and controls our general partner. In addition, our general partner has the right to appoint four of seven, or a majority, of our directors. Certain of our directors and officers are directors and
officers of GasLog or its affiliates, and, as such, they have fiduciary duties to GasLog or its affiliates that may cause them to pursue business strategies that
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disproportionately
benefit GasLog or its affiliates or which otherwise are not in the best interests of us or our unitholders. Conflicts of interest may arise between GasLog and its affiliates
(including our general partner), on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner and its affiliates may favor their own interests
over the interests of our unitholders. See "Our partnership agreement limits our general partner's and our directors' fiduciary duties to our unitholders and restricts the remedies
available to unitholders for actions taken by our general partner or our directors". These conflicts include, among others, the following situations:
-
-
neither our partnership agreement nor any other agreement requires our general partner or GasLog or its affiliates to pursue a business
strategy that favors us or utilizes our assets, and GasLog's officers and directors have a fiduciary duty to make decisions in the best interests of the shareholders of GasLog, which may be contrary
to our interests;
-
-
our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity
as our general partner. Specifically, our general partner will be considered to be acting in its individual capacity if it exercises its call right, pre-emptive rights or registration rights, consents
or withholds consent to any merger or consolidation of the partnership, appoints any directors or votes for the election of any director, votes or refrains from voting on amendments to our partnership
agreement that require a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our partnership agreement) or refrains from transferring
its units or general partner interest or votes upon the dissolution of the partnership;
-
-
under our partnership agreement, as permitted under Marshall Islands law, our general partner and our directors have limited fiduciary duties.
The partnership agreement also restricts the remedies available to our unitholders; as a result of purchasing units, unitholders are treated as having agreed to the modified standard of fiduciary
duties and to certain actions that may be taken by our general partner and our directors, all as set forth in the partnership agreement;
-
-
our general partner is entitled to reimbursement of all reasonable costs incurred by it and its affiliates for our benefit;
-
-
our partnership agreement does not restrict us from paying our general partner or its affiliates for any services rendered to us on terms that
are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf;
-
-
our general partner may exercise its right to call and purchase our common units if it and its affiliates own more than 80% of our common
units; and
-
-
our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the
exercise of its limited call right.
Even
if our general partner relinquishes the power to elect one director to the common unitholders, so that they will elect a majority of our directors, our general partner will have
substantial influence on decisions made by our board of directors. See "Item 7. Major Unitholders and Related Party TransactionsB. Related Party Transactions".
Our officers face conflicts in the allocation of their time to our business.
Our officers are all employed by GasLog or its applicable affiliate and are performing executive officer functions for us pursuant to the
administrative services agreement. Our officers, with the exception of our Chief Executive Officer ("CEO"), Andrew J. Orekar, are not required to work full-time on our affairs and also perform
services for affiliates of our general partner (including GasLog). As a result, there could be material competition for the time and effort of our officers who also provide services to our general
partner's affiliates, which could have a material adverse effect on
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our
business, results of operations and financial condition. See "Item 6. Directors, Senior Management and Employees".
Our partnership agreement limits our general partner's and our directors' fiduciary duties to our unitholders
and restricts the remedies available to unitholders for actions taken by our general partner or our directors.
Under the partnership agreement, our general partner has delegated to our board of directors the authority to oversee and direct our operations,
management and policies on an
exclusive basis, and such delegation will be binding on any successor general partner of the partnership. Our partnership agreement also contains provisions that reduce the standards to which our
general partner and directors would otherwise be held by Marshall Islands law. For example, our partnership agreement:
-
-
permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner.
Where our partnership agreement permits, our general partner may consider only the interests and factors that it desires, and in such cases, it has no fiduciary duty or obligation to give any
consideration to any interest of, or factors affecting, us, our affiliates or our unitholders. Decisions made by our general partner in its individual capacity will be made by its sole owner, GasLog.
Specifically, pursuant to our partnership agreement, our general partner will be considered to be acting in its individual capacity if it exercises its call right, pre-emptive rights or registration
rights, consents or withholds consent to any merger or consolidation of the partnership, appoints any directors or votes for the election of any director, votes or refrains from voting on amendments
to our partnership agreement that require a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our partnership agreement) or refrains
from transferring its units or general partner interest or votes upon the dissolution of the partnership;
-
-
provides that our general partner and our directors are entitled to make other decisions in "good faith" if they reasonably believe that the
decision is in our best interests;
-
-
generally provides that transactions with our affiliates and resolutions of conflicts of interest not approved by the conflicts committee of
our board of directors and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be "fair and
reasonable" to us and that, in determining whether a transaction or resolution is "fair and reasonable", our board of directors may consider the totality of the relationships between the parties
involved, including other transactions that may be particularly advantageous or beneficial to us; and
-
-
provides that neither our general partner nor our officers or directors will be liable for monetary damages to us, our limited partners or
assignees for any acts or omissions, unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or our officers or
directors or those other persons engaged in actual fraud or willful misconduct.
In
order to become a limited partner of our partnership, a unitholder is required to agree to be bound by the provisions in the partnership agreement, including the provisions discussed
above.
Fees and cost reimbursements, which GasLog or its applicable affiliate will determine for services provided
to us and our subsidiaries, will be substantial, will likely be higher for future periods than reflected in our results of operations for the year ended December 31, 2017, will be payable
regardless of our profitability and will reduce our cash available for distribution to our unitholders.
Pursuant to the ship management agreements, our subsidiaries pay fees for services provided to them by GasLog LNG Services, and reimburse GasLog
LNG Services for all expenses incurred on their behalf. These fees and expenses include all costs and expenses incurred in providing the crew and
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technical
management of the vessels in our fleet to our subsidiaries. In addition, our operating subsidiaries pay GasLog LNG Services a fixed management fee for costs and expenses incurred in
connection with providing these services to our operating subsidiaries.
Pursuant
to an administrative services agreement, GasLog provides us with certain administrative services. We pay a fixed fee to GasLog for its reasonable costs and expenses incurred in
connection with the provision of the services under the administrative services agreement.
Pursuant
to the commercial management agreements, GasLog provides us with commercial management services. We pay to GasLog a fixed commercial management fee in U.S. dollars for costs and
expenses incurred in connection with providing services.
For
a description of the ship management agreements, commercial management agreements and the administrative services agreement, see "Item 7. Major Unitholders and Related Party
TransactionsB. Related Party Transactions". The aggregate fees and expenses payable for services under the ship management agreements, commercial management agreements and administrative
services agreement for the year ended December 31, 2017 were $6.1 million, $4.3 million and $6.5 million, respectively. As the fees under the administrative services
agreement relate to the
GasLog Greece,
the
GasLog Geneva
and the
Solaris
only since their acquisition from
GasLog in May, July and October 2017 respectively, and our board approved an increase in the service fee
payable to
GasLog under the terms of the administrative services agreement with effective date January 1, 2018, the fees and expenses payable pursuant to this agreement will likely be higher for future
periods than reflected in our results of operations for the year ended December 31, 2017. Additionally, these fees and expenses will be payable without regard to our business, results of
operation and financial condition. The payment of fees to and the reimbursement of expenses of GasLog or its applicable affiliate, including GasLog LNG Services, could adversely affect our ability to
pay cash distributions to our unitholders.
Our partnership agreement contains provisions that may have the effect of discouraging a person or group from
attempting to remove our current management or our general partner and, even if public unitholders are dissatisfied, it will be difficult for them to remove our general partner without GasLog's
consent, all of which could diminish the trading price of our common units and Preference Units.
Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove our current
management or our general partner.
-
-
It is difficult for unitholders to remove our general partner without its consent. The vote of the holders of at least 66
2
/
3
% of
all outstanding common units, including any units owned by our general partner and its affiliates, voting together as a single class is required to remove the general partner. As of February 8,
2018, GasLog owns 24.4% of the outstanding common units. Common unitholders are entitled to elect only three of the seven members of our board of directors. Our general partner, by virtue of its
general partner interest, in its sole discretion, appoints the remaining directors (subject to its right to transfer the power to elect a majority of our directors to the common unitholders).
-
-
The election of the directors by common unitholders is staggered, meaning that the members of only one of three classes of our elected
directors will be selected each year. In addition, the directors appointed by our general partner will serve for terms determined by our general partner.
-
-
Our partnership agreement contains provisions limiting the ability of common unitholders to call meetings of unitholders, to nominate directors
and to acquire information about our operations as well as other provisions limiting the unitholders' ability to influence the manner or direction of management.
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-
-
Unitholders' voting rights are further restricted by the partnership agreement provision providing that if any person or group owns
beneficially more than 4.9% of any class of units (other than Preference Units) then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will
not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board of directors),
determining the presence of a quorum or for other similar purposes, unless required by law. Effectively, this means that the voting rights of any such common unitholders in excess of 4.9% will be
redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our general partner, its affiliates and persons who
acquired common units with the prior approval of our board of directors will not be subject to this 4.9% limitation, except with respect to voting their common units in the election of the elected
directors.
-
-
There are no restrictions in our partnership agreement on our ability to issue equity securities.
The
effect of these provisions may be to diminish the price at which the common units and Preference Units will trade.
The control of our general partner may be transferred to a third party without unitholder consent.
Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its
assets without the consent of the unitholders. In addition, our partnership agreement does not restrict the ability of the members of our general partner from transferring their respective membership
interests in our general partner to a third party.
Substantial future sales of our common units in the public market could cause the price of our common units
to fall.
We have granted registration rights to GasLog and certain of its affiliates. These unitholders have the right, subject to some conditions, to
require us to file registration statements covering any of our common or other equity securities owned by them or to include those securities in registration statements that we may file for ourselves
or other unitholders. As of February 8, 2018, GasLog owns 9,984,716 common units and all of the incentive distribution rights. Following their registration and sale under the applicable
registration statement, those securities will become freely tradable. By exercising their registration rights and selling a large number of common units or other securities, these unitholders could
cause the price of our common units to decline.
GasLog, as the holder of all of the incentive distribution rights, may elect to cause us to issue additional
common units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights without the approval of the conflicts committee of our board of
directors or holders of our common units. This may result in lower distributions to holders of our common units in certain situations.
GasLog, as the holder of all of the incentive distribution rights, has the right, at a time when it has received incentive distributions at the
highest level to which it is entitled (48.0%) for each of the prior four consecutive fiscal quarters, to reset the initial cash target distribution levels at higher levels based on the distribution at
the time of the exercise of the reset election. Following a reset election by GasLog, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount
per common unit for the two fiscal quarters immediately preceding the reset election (such amount is referred to as the "reset minimum quarterly distribution"), and the target distribution levels will
be reset to correspondingly higher levels based on the same percentage increases above the reset minimum quarterly distribution amount.
In
connection with resetting these target distribution levels, GasLog will be entitled to receive a number of common units equal to that number of common units whose aggregate quarterly
cash
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distributions
equaled the average of the distributions to it on the incentive distribution rights in the prior two quarters. We anticipate that GasLog would exercise this reset right in order to
facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion; however, it is possible that GasLog could
exercise this reset election at a time when it is experiencing, or may be expected to experience, declines in the cash
distributions it receives related to its incentive distribution rights and may therefore desire to be issued our common units, rather than retain the right to receive incentive distributions based on
the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise
received had we not issued additional common units to GasLog in connection with resetting the target distribution levels related to GasLog's incentive distribution rights. See "Item 8.
Financial InformationOur Cash Distribution PolicyIncentive Distribution Rights".
We may issue additional equity securities, including securities senior to the common units, without the
approval of our common unitholders, which would dilute the ownership interests of the common unitholders.
We may, without the approval of our common unitholders, issue an unlimited number of additional units or other equity securities. In addition,
we may issue an unlimited number of units that are senior to the common units in right of distribution, liquidation and voting. For example, in January 2017, we completed a follow-on public offering
of 3,750,000 common units and in connection with the offering issued 76,531 general partner units to our general partner in order for GasLog to retain its 2.0% general partner interest. Furthermore,
on May 15, 2017, we completed a public offering of 5,750,000 8.625% Series A Preference Units (including 750,000 units issued upon the exercise in full by the underwriters of their
option to purchase additional Series A Preference Units).
On
May 16, 2017, the Partnership commenced its ATM Programme under which we may, from time to time, raise equity through the issuance and sale of new common units. Following an
increase in the size of the ATM Programme completed on November 3, 2017 we can issue up to $144.0 million in new common units. On January 17, 2018, we completed a public offering
of 4,600,000, 8.200% Series B Preference Units (including 600,000 units issued upon the exercise in full by the underwriters of their option to purchase additional Series B Preference
Units).
The
issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:
-
-
our common unitholders' proportionate economic ownership interest in us will decrease;
-
-
the amount of cash available for distribution on each common unit may decrease;
-
-
the relative voting strength of each previously outstanding common unit may be diminished;
-
-
we may not be able to pay our distributions to common unitholders if we have failed to pay the distributions on our Preference Units; and
-
-
the market price of the common units may decline.
The
Preference Units are senior to the common units and as such receive priority over the common units in distributions and liquidation.
In establishing cash reserves, our board of directors may reduce the amount of cash available for
distribution to you.
Our partnership agreement requires our board of directors to deduct from operating surplus cash reserves that it determines are necessary to
fund our future operating expenditures. These reserves also will affect the amount of cash available for distribution to our unitholders and they are not subject to any specified maximum dollar
amount. As described above in "Risks Inherent in Our BusinessWe
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must
make substantial capital expenditures to maintain and replace the operating capacity of our fleet, which will reduce cash available for distribution. In addition, each quarter we are required to
deduct estimated maintenance and replacement capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance and replacement capital
expenditures were deducted", our partnership agreement requires our board of directors each quarter to deduct
from operating surplus estimated maintenance and replacement capital expenditures, as opposed to actual maintenance and replacement capital expenditures, which could reduce the amount of available
cash for distribution. The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus is subject to review and change by our board of directors at least once
a year, provided that any change must be approved by the conflicts committee of our board of directors.
Our general partner has a limited call right that may require you to sell your common units at an undesirable
time or price.
If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, which it
may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than the then-current
market price of our common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this limited
call right. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale
of your common units. GasLog, which owns and controls our general partner, owns 24.4% of our common units.
You may not have limited liability if a court finds that unitholder action constitutes control of our
business.
As a limited partner in a partnership organized under the laws of the Marshall Islands, you could be held liable for our obligations to the same
extent as a general partner if you participate in the "control" of our business. Our general partner generally has unlimited liability for the obligations of the partnership, such as its debts and
environmental liabilities, except for those contractual obligations of the partnership that are expressly made without recourse to our general partner. In addition, the limitations on the liability of
holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some jurisdictions in which we do business.
We can borrow money to pay distributions, which would reduce the amount of credit available to operate our
business.
Our partnership agreement allows us to make working capital borrowings to pay distributions. Accordingly, if we have available borrowing
capacity, we can make distributions on all our
units even though cash generated by our operations may not be sufficient to pay such distributions. Any working capital borrowings by us to make distributions will reduce the amount of working capital
borrowings we can make for operating our business. For more information, see "Item 5. Operating and Financial Review and ProspectsB. Liquidity and Capital
ResourcesCredit Facilities".
The price of our common units may be volatile.
The price of our common units may be volatile and may fluctuate due to factors including:
-
-
our payment of cash distributions to our unitholders;
-
-
actual or anticipated fluctuations in quarterly and annual results;
-
-
fluctuations in oil and natural gas prices;
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-
-
fluctuations in the seaborne transportation industry, including fluctuations in the LNG carrier market;
-
-
mergers and strategic alliances in the shipping industry;
-
-
changes in governmental regulations or maritime self-regulatory organizations standards;
-
-
shortfalls in our operating results from levels forecasted by securities analysts;
-
-
announcements concerning us or our competitors or other quoted MLPs;
-
-
the failure of securities analysts to publish research about us, or analysts making changes in their financial estimates;
-
-
general economic conditions including fluctuations in interest rates;
-
-
terrorist acts;
-
-
future sales of our units or other securities, including sales under our ATM Programme;
-
-
investors' perceptions of us and the LNG shipping industry;
-
-
the general state of the securities markets; and
-
-
other developments affecting us, our industry or our competitors.
Securities
markets worldwide are experiencing significant price and volume fluctuations. The market price for our common units may also be volatile. This market volatility, as well as
general economic, market or political conditions, could reduce the market price of our common units despite our operating performance.
Increases in interest rates may cause the market price of our common units to decline.
An increase in interest rates may cause a corresponding decline in demand for equity investments in general, and in particular for yield-based
equity investments such as our common units. Any such increase in interest rates or reduction in demand for our common units resulting from other relatively more attractive investment opportunities
may cause the trading price of our common units to decline.
Unitholders may have liability to repay distributions.
Under some circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under the Marshall Islands Limited
Partnership Act, or the "Marshall Islands Act", we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Marshall Islands law
provides that for a period of three years from
the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Marshall Islands law will be liable to the
limited partnership for the distribution amount. Assignees who become substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are
known to the assignee at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of
their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.
Our Preference Units are subordinated to our debt obligations and investors' interests could be diluted by
the issuance of additional preference units and by other transactions.
Our Preference Units are subordinated to all of our existing and future indebtedness. As of December 31, 2017, we had an aggregate of
$1,155.6 million of outstanding indebtedness. Our existing
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indebtedness
restricts, and our future indebtedness may include restrictions on, our ability to pay distributions to unitholders. Our partnership agreement authorizes the issue of an unlimited number
of preference units in one or more class of units. The issuance of additional preference units on a parity with or senior to our Preference Units would dilute the interests of the holders of our
Preference Units, and any issuance of preference units senior to or on a parity with our Preference Units or of additional indebtedness could affect our ability to pay distributions on, redeem or pay
the liquidation preference on our Preference Units. No provisions relating to our Preference Units protect the holders of our Preference Units in the event of a highly leveraged or other transaction,
including the sale, lease or conveyance of all or substantially all our assets or business, which might adversely affect the holders of our Preference Units.
Each
series of our Preference Units ranks pari passu with any other class or series of units established after the original issue date of such series that is not expressly subordinated
or senior to the Preference Units as to the payment of distributions and amounts payable upon liquidation or reorganization. If less than all distributions payable with respect to a series of
Preference Units and any parity securities are paid, any partial payment shall be made pro rata with respect to such Preference Units and any parity securities entitled to a distribution payment at
such time in proportion to the aggregate amounts remaining due in respect of such units at such time.
Holders of our Preference Units have extremely limited voting rights.
Holders of the Preference Units generally have no voting rights. However, if and whenever distributions payable on a series of Preference Units
are in arrears for six or more quarterly periods, whether or not consecutive, holders of such series of Preference Units (voting together as a class with all other classes or series of parity
securities upon which like voting rights have been conferred and are exercisable) will be entitled to elect one additional director to serve on our board of directors, and the size of our board of
directors will be increased as needed to accommodate such change (unless the size of our board of directors already has been increased by reason of the election of a director by holders of parity
securities upon which like voting rights have been conferred and with which the Preference Units voted as a class for the election of such director). The right of such holders of Preference Units to
elect a member of our board of directors will continue until such time as all accumulated and unpaid distributions on the applicable series of Preference Units have been paid in full.
The Preference Units represent perpetual equity interests and holders have no right to receive any greater
payment than the liquidation preference regardless of the circumstances.
The Preference Units represent perpetual equity interests in us and, unlike our indebtedness, will not give rise to a claim for payment of a
principal amount at a particular date. As a result, holders of the Preference Units may be required to bear the financial risks of an investment in the Preference Units for an indefinite period of
time. In addition, the Preference Units rank junior to all our indebtedness and other liabilities, and any other senior securities we may issue in the future with respect to assets available to
satisfy claims against us.
The
payment due to a holder of Series A Preference Units or Series B Preference Units upon a liquidation is fixed at the redemption preference of $25.00 per unit plus
accumulated and unpaid distributions to the date of liquidation. If, in the case of our liquidation, there are remaining assets to be distributed after payment of this amount, holders of Preference
Units will have no right to receive or to participate in these amounts. Furthermore, if the market price for Preference Units is greater than the liquidation preference, holders of Preference Units
will have no right to receive the market price from us upon our liquidation.
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We distribute all of our available cash to our limited partners and are not required to accumulate cash for
the purpose of meeting our future obligations to holders of the Preference Units, which may limit the cash available to make distributions on the Preference Units.
Subject to the limitations in our partnership agreement, we distribute all of our available cash each quarter to our limited partners.
"Available cash" is defined in our partnership agreement, and it generally means, for each fiscal quarter, all cash on hand at the end of the quarter (including our proportionate share of cash on hand
of certain subsidiaries we do not wholly own):
-
-
less the amount of cash reserves (including our proportionate share of cash reserves of certain subsidiaries we do not wholly own) established
by the board of directors to:
-
-
provide for the proper conduct of our business (including reserves for future capital expenditures and for our anticipated credit
needs);
-
-
comply with applicable law, any debt instruments, or other agreements;
-
-
provide funds for payments to holders of Preference Units; and/or
-
-
provide funds for distributions to our limited partners and to our general partner for any one or more of the next four quarters;
-
-
plus all cash on hand (including our proportionate share of cash on hand of certain subsidiaries we do not wholly own) on the date of
determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. Working capital borrowings are generally borrowings that are made under our
credit agreements and in all cases are used solely for working capital purposes or to pay distributions to partners.
As
a result, we do not expect to accumulate significant amounts of cash. Depending on the timing and amount of our cash distributions, these distributions could significantly reduce the
cash available to us in subsequent periods to make payments on the Preference Units.
The Preference Units have not been rated, and ratings of any other of our securities may affect the trading
price of the Preference Units.
We have not sought to obtain a rating for either series of Preference Units, and the units may never be rated. It is possible, however, that one
or more rating agencies might independently determine to assign a rating to the Series A and/or Series B Preference Units or that we may elect to obtain a rating of our Series A
or Series B Preference Units in the future. In addition, we may elect to issue other securities for which we may seek to obtain a rating. If any ratings are assigned to a series of Preference
Units in the future or if we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, or if ratings for such other
securities would imply a lower relative value for the Preference Units, could adversely affect the market for, or the market value of, the Preference Units. Ratings only reflect the views of the
issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to
purchase, sell or hold any particular security, including the Preference Units. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of
either the Series A or Series B Preference Units may not reflect all risks related to us and our business, or the structure or market value of the Preference Units.
Market interest rates may adversely affect the value of our Preference Units.
One of the factors that will influence the price of our Preference Units will be the distribution yield on the Preference Units (as a percentage
of the price of our Series A Preference Units or Series B Preference Units, as applicable) relative to market interest rates. An increase in market
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interest
rates may lead prospective purchasers of our Preference Units to expect higher distribution yields, and higher interest rates would likely increase our borrowing costs and potentially
decrease funds available for distributions. Accordingly, higher market interest rates could cause the market price of our Preference Units to decrease.
The Preference Units are redeemable at our option.
We may, at our option, redeem all or, from time to time, part of the Series A Preference Units on or after June 15, 2027 or the
Series B Preference Units on or after March 15, 2023. If we redeem your Series A Preference Units or Series B Preference Units, you will be entitled to receive a redemption
price equal to $25.00 per unit plus accumulated and unpaid distributions to the date of redemption. It is likely that we would choose to exercise our optional redemption right only when prevailing
interest rates have declined, which would adversely affect your ability to reinvest your proceeds from the redemption in a comparable investment with an equal or greater yield to the yield on the
applicable series of Preference Units had such series of Preference Units not been redeemed. We may elect to exercise our partial redemption right on multiple occasions.
The historical levels of three-month LIBOR are not an indication of the future levels of three-month LIBOR.
From and including June 15, 2027, the distribution rate for the Series A Preference Units will be determined based on three-month
LIBOR, and from and including March 15, 2023, the distribution rate for the Series B Preference Units will be determined based on three-month LIBOR. In the past, the level of three-month
LIBOR has experienced significant fluctuations. Historical levels, fluctuations and trends of three-month LIBOR are not necessarily indicative of future levels. Any historical upward or downward trend
in three-month LIBOR is not an indication that three-month LIBOR is more or less likely to increase or decrease at any time during the floating rate period for a series of Preference Units, and you
should not take the historical levels of three-month LIBOR as an indication of its future performance. Although the actual three-month LIBOR on a distribution payment date or at other times during a
distribution period with respect to a series of Preference Units may be higher than the three-month LIBOR on the applicable distribution determination date for such series, you will not benefit from
the three-month LIBOR at any time other than on the distribution determination date for such distribution period. As a result, changes in the three-month LIBOR may not result in a comparable change in
the market value of the Series A Preference Units on or after June 15, 2027 or in the market value of the Series B Preference Units on or after March 15, 2023.
Increased regulatory oversight, uncertainty relating to the LIBOR calculation process and potential phasing
out of LIBOR after 2021 may adversely affect the value of and return on the Preference Units. If LIBOR is discontinued, distributions on a series of Preference Units during the applicable floating
rate period may be calculated using another base rate.
Regulators and law enforcement agencies in the United Kingdom and elsewhere are conducting civil and criminal investigations into whether the
banks that contribute to the British Bankers' Association (the "BBA") in connection with the calculation of daily LIBOR may have been under-reporting or otherwise manipulating or attempting to
manipulate LIBOR. A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR.
On
July 27, 2017, the United Kingdom Financial Conduct Authority ("FCA"), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates
for the calculation of LIBOR to the administrator of LIBOR after 2021 ("FCA Announcement"). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed
after 2021. It is not possible to predict the effect of the FCA Announcement, any changes in the methods pursuant to which LIBOR rates are determined and any other reforms to LIBOR that will be
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enacted
in the United Kingdom and elsewhere, which may adversely affect the trading market for LIBOR based securities, including the Preference Units, or result in the phasing out of LIBOR as a
reference rate for securities. In addition, any changes announced by the FCA, including the FCA Announcement, the ICE Benchmark Administration Limited (the independent administrator of LIBOR)
or any other successor governance or oversight body, or future changes adopted by such body, in the method pursuant to which LIBOR rates are determined may result in a sudden or prolonged increase or
decrease in reported LIBOR rates. If that were to occur, the level of distribution payments during the floating rate period for a series of Preference Units would be affected and the value of such
Preference Units may be materially affected.
Further,
if a LIBOR rate is not available on a distribution determination date during the floating rate period for a series of Preference Units, the terms of such Preference Units will
require alternative determination procedures which may result in distribution payments differing from expectations and could materially affect the value of such Preference Units.
We will be subject to taxes, which will reduce our cash available for distribution to the holders of our
Preference Units.
We and our subsidiaries may be subject to tax in the jurisdictions in which we are organized or operate, reducing the amount of cash available
for distributions. In computing our tax obligation in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and
for which we have not received rulings from the governing authorities. We cannot assure you that upon review of these positions the applicable authorities will agree with our positions. A successful
challenge by a tax authority could result in additional tax imposed on us or our subsidiaries, further reducing the cash available for distributions. In addition, changes in our operations or
ownership could result in additional tax being imposed on us or our subsidiaries in jurisdictions in which operations are conducted.
We have been organized as a limited partnership under the laws of the Marshall Islands, which does not have a
well-developed body of partnership law.
We are a partnership formed in the Republic of the Marshall Islands, which does not have a well-developed body of case law or bankruptcy law
and, as a result, unitholders have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States. As such, in the case of a bankruptcy of the
Partnership, there may be a delay of bankruptcy proceedings and the ability of unitholders and creditors to receive recovery after a bankruptcy proceeding. Our partnership affairs are governed by our
partnership agreement and by the Marshall Islands Act. The provisions of the Marshall Islands Act resemble provisions of the limited partnership laws of a number of states in the United States, most
notably Delaware. The Marshall Islands Act also provides that it is to be applied and construed to make it uniform with the Delaware Revised Uniform Partnership Act and, so long as it does not
conflict with the Marshall Islands Act or decisions of the Marshall Islands courts, interpreted according to the non-statutory law (or case law) of the State of Delaware. There have been, however,
few, if any, court cases in the Marshall Islands interpreting the Marshall Islands Act, in contrast to Delaware, which has a well-developed body of case law interpreting its limited partnership
statute. Accordingly, we cannot predict whether Marshall Islands courts would reach the same conclusions as the courts in Delaware. For example, the rights of our unitholders and the fiduciary
responsibilities of our general partner under Marshall Islands law are not as clearly established as under judicial precedent in existence in Delaware. As a result, unitholders may have more
difficulty in protecting their interests in the face of actions by our general partner and its officers and directors than would unitholders of a similarly organized limited partnership in the United
States.
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Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal
process or enforce judgments against us, our directors or our management.
We are organized under the laws of the Marshall Islands and substantially all of our assets are located outside of the United States. In
addition, our general partner is a Marshall Islands limited liability company, our directors and officers generally are or will be non-residents of the United States, and all or a substantial portion
of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the
United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Marshall Islands
and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or the assets of our general partner or our directors or officers.
Our partnership agreement designates the Court of Chancery of the State of Delaware as the sole and exclusive
forum, unless otherwise provided for by Marshall Islands law, for certain litigation that may be initiated by our unitholders, which could limit our unitholders' ability to obtain a favorable judicial
forum for disputes with our general partner.
Our partnership agreement provides that, unless otherwise provided for by Marshall Islands law, the Court of Chancery of the State of Delaware
will be the sole and exclusive forum for any claims that:
-
-
arise out of or relate in any way to the partnership agreement (including any claims, suits or actions to interpret, apply or enforce the
provisions of the partnership agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited
partners or us);
-
-
are brought in a derivative manner on our behalf;
-
-
assert a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our general partner, or owed by our
general partner, to us or the limited partners;
-
-
assert a claim arising pursuant to any provision of the Marshall Islands Act; or
-
-
assert a claim governed by the internal affairs doctrine regardless of whether such claims, suits, actions or proceedings sound in contract,
tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. Any person or entity otherwise acquiring any interest in our common
units or Preference Units shall be deemed to have notice of and to have consented to the provisions described above. This forum selection provision may limit our unitholders' ability to obtain a
judicial forum that they find favorable for disputes with us or our directors, officers or other employees or unitholders.
Tax Risks
In addition to the following risk factors, you should read "Item 10. Additional InformationE. Tax Considerations" for a more
complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our common units and Preference Units.
We may be subject to taxes, which may reduce our cash available for distribution to you.
We and our subsidiaries may be subject to tax in the jurisdictions in which we are organized or operate, reducing the amount of cash available
for distribution. In computing our tax obligation in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and
for which we have not received rulings from the governing
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authorities.
We cannot assure you that upon review of these positions the applicable authorities will agree with our positions. A successful challenge by a tax authority could result in additional tax
imposed on us or our subsidiaries, further reducing the cash available for distribution. In addition, changes in our operations or ownership could result in additional tax being imposed on us or our
subsidiaries in jurisdictions in which operations are conducted. See "Item 4. Information on the PartnershipB. Business OverviewTaxation of the Partnership".
U.S. tax authorities could treat us as a "passive foreign investment company" under certain circumstances,
which would have adverse U.S. federal income tax consequences to U.S. unitholders.
A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a "passive foreign investment company", or
"PFIC", for U.S. federal income tax purposes if at least 75.0% of its gross income for any tax year consists of "passive income" or at least 50.0% of the average value of its assets produce, or are
held for the production of, "passive income". For purposes of these tests, "passive income" includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties
other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance
of services does not constitute "passive income". U.S. unitholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the
distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests in the PFIC.
Based
on our past, current and projected methods of operation, and an opinion of our U.S. counsel, Cravath, Swaine & Moore LLP, we believe that we were not a PFIC for any
of our previous tax years and that we will not be treated as a PFIC for any future tax year. We have received opinions of our U.S. counsel in support of this position that conclude that the income our
subsidiaries earn from certain of our time-chartering activities should not constitute passive income for purposes of determining whether we are a PFIC. In addition, we have represented to our U.S.
counsel that more than 25.0% of our gross income for each of our previous years arose and that we expect that more than 25.0% of our gross income for our current and each future year will arise from
such time-chartering activities, and more than 50.0% of the average value of our assets for each such year was or will be held for the production of such non-passive income. Assuming the composition
of our income and assets is consistent with these expectations, and assuming the accuracy of other representations we have made to our U.S. counsel for purposes of their opinion, our U.S. counsel is
of the opinion that we should not be a PFIC for any of our previous tax years or for our current tax year or any future year. This opinion is based and its accuracy is conditioned on representations,
valuations and projections provided by us regarding our assets, income and charters to our U.S. counsel. While we believe these representations, valuations and projections to be accurate, the shipping
market is volatile and no assurance can be given that they will continue to be accurate at any time in the future.
Moreover,
there are legal uncertainties involved in determining whether the income derived from time-chartering activities constitutes rental income or income derived from the
performance of services. In
Tidewater Inc. v. United States
, 565 F.3d 299 (5th Cir. 2009), the United States Court of Appeals for
the Fifth Circuit, or the "Fifth Circuit", held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a provision
of the Code relating to foreign sales corporations. In that case, the Fifth Circuit did not address the definition of passive income or the PFIC rules; however, the reasoning of the case could have
implications as to how the income from a time charter would be classified under such rules. If the reasoning of this case were extended to the PFIC context, the gross income we derive or are deemed to
derive from our time-chartering activities may be treated as rental income, and we would likely be treated as a PFIC. In published guidance, the Internal Revenue Service, or "IRS", stated that it
disagreed with the holding in
Tidewater
, and specified that time charters similar to those at issue in the case should be treated as
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service
contracts. We have not sought, and we do not expect to seek, an IRS ruling on the treatment of income generated from our time-chartering activities, and the opinion of our counsel is not
binding on the IRS or any court. As a result, the IRS or a court could disagree with our position. No assurance can be given that this result will not occur. In addition, although we intend to conduct
our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any tax year, we cannot assure you that the nature of our operations will not change in the future,
or that we will not be a PFIC in the future. If the IRS were to find that we are or have been a PFIC for any tax year (and regardless of whether we remain a PFIC for any subsequent tax year), our U.S.
unitholders would face adverse U.S. federal income tax consequences. See "Item 10. Additional InformationE. Tax ConsiderationsMaterial U.S. Federal Income Tax
ConsiderationsU.S. Federal Income Taxation of U.S. HoldersPFIC Status and Significant Tax Consequences" for a more detailed discussion of the U.S. federal income tax
consequences to U.S. unitholders if we are treated as a PFIC.
We may have to pay tax on U.S.-source income, which will reduce our cash flow.
Under the Code, the U.S. source gross transportation income of a ship-owning or chartering corporation, such as ourselves, is subject to a 4%
U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under a tax treaty or Section 883 of the Code and the Treasury Regulations
promulgated thereunder. U.S. source gross transportation income consists of 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin
and end, in the United States.
We
do not expect to qualify for an exemption from such U.S. federal income tax under a tax treaty nor do we expect to qualify for the exemption under Section 883 of the Code
during the 2018 tax year, unless our general partner exercises the "GasLog option" described in "Item 4. Information on the PartnershipB. Business OverviewTaxation of
the PartnershipU.S. Taxation of Shipping". Even if we do not qualify for such an exemption, we do not currently expect any resulting U.S. federal income tax liability to be material or
materially reduce the earnings available for distribution to our unitholders. For 2017, the U.S. source gross transportation tax was $0.3 million. For a more detailed discussion, see the
section entitled "Item 4. Information on the PartnershipB. Business OverviewTaxation of the PartnershipUnited States".
You may be subject to income tax in one or more non-U.S. jurisdictions as a result of owning our common units
or Preference Units if, under the laws of any such jurisdiction, we are considered to be carrying on business there. Such laws may require you to file a tax return with, and pay taxes to, those
jurisdictions.
We intend to conduct our affairs and cause each of our subsidiaries to operate its business in a manner that minimizes income taxes imposed upon
us and our subsidiaries. Furthermore, we intend to conduct our affairs and cause each of our subsidiaries to operate its business in a manner that minimizes the risk that unitholders may be treated as
having a permanent establishment or tax presence in a jurisdiction where we or our subsidiaries conduct activities simply by virtue of their ownership of our common units or Preference Units. However,
because we are organized as a partnership, there is a risk in some jurisdictions that our activities or the activities of our subsidiaries may rise to the level of a tax presence that is attributed to
our unitholders for tax purposes. If you are attributed such a tax presence in a jurisdiction, you may be required to file a tax return with, and to pay tax in, that jurisdiction based on your
allocable share of our income. In addition, we may be required to obtain information from you in the event a tax authority requires such information to submit a tax return. We may be required to
reduce distributions to you on account of any tax withholding obligations imposed upon us by that jurisdiction in respect of such allocation to you. The United States may not allow a tax credit for
any foreign income taxes that you directly or indirectly incur by virtue of an investment in us.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with the
financial statements and the notes to those statements included elsewhere in this annual report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result
of many factors, such as those set forth under "Item 3. Key InformationD. Risk
Factors" and elsewhere in this annual report, our actual results may differ materially from those anticipated in these forward-looking statements. Please see the section "Forward-Looking Statements"
at the beginning of this annual report.
Prior to the closing of the IPO, we did not own any vessels. Our IFRS Common Control Reported Results represent the results of GasLog Partners as an entity under
the common control of GasLog. The following discussion assumes that our business was operated as a separate entity prior to its inception. The transfer of the three initial vessels from GasLog to the
Partnership at the time of the IPO, the transfer of two vessels from GasLog to the Partnership in September 2014, the transfer of three vessels from GasLog to the Partnership in July 2015, the
transfer of one vessel from GasLog to the Partnership in November 2016 and the transfer of three vessels from GasLog to the Partnership in May, July and October 2017, respectively, were each accounted
for as a reorganization of entities under common control under IFRS. Accordingly, the annual consolidated financial statements and the accompanying discussion under "Results of Operations" include the
accounts of the Partnership and its subsidiaries assuming that they are consolidated from the date of their incorporation by GasLog, as they were under the common control of
GasLog.
For the periods prior to the closing of the IPO, our financial position, results of operations and cash flows reflected in our financial statements include all
expenses allocable to our business, but may not be indicative of those that would have been incurred had we operated as a separate public entity for all years presented or of future
results.
We manage our business and analyze and report our results of operations in a single segment.
Overview
We are a growth-oriented limited partnership focused on owning, operating and acquiring LNG carriers engaged in LNG transportation under
multi-year charters. Our fleet of 12 LNG carriers, which have charter terms expiring through 2026, were contributed to us by, or acquired from, GasLog, which controls us through its ownership of our
general partner. The charters on three of the vessels expire in 2018 and two further charters expire in 2019. On redelivery, the vessels may operate in the short-term spot market until we secure new
long-term time charters.
Our
fleet consists of 12 LNG carriers, including seven vessels with modern TFDE propulsion technology and five Steam vessels, all of which operate under time charters with Shell. We also
have options and other rights under which we may acquire additional LNG carriers from GasLog, as described below. We believe that such options and rights provide us with significant built-in growth
opportunities. We may also acquire vessels or other LNG infrastructure assets from shipyards or other owners.
We
operate our vessels under multi-year charters with fixed-fee contracts that generate predictable cash flows. We intend to grow our fleet through further acquisitions of LNG carriers
from GasLog and/or third parties. However, we cannot assure you that we will make any particular acquisition or that, as a consequence, we will successfully grow our per unit distributions. Among
other things, our ability to acquire additional LNG carriers will be dependent upon our ability to raise additional equity and debt financing.
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Items You Should Consider When Evaluating Our Historical Financial Performance and Assessing Our Future Prospects
Our results of operations, cash flows and financial conditions could differ from those that would have resulted if we operated autonomously or
as an entity independent of GasLog in the years for which historical financial data is presented below, and such data may not be indicative of our future operating results or financial performance.
You
should consider the following facts when evaluating our historical results of operations and assessing our future prospects:
-
-
Our fleet consists of 12 LNG carriers. The charters on three of the vessels expire in 2018 and two further
charters expire in 2019.
We continue to pursue opportunities for new multi-year charters with third parties for these vessels, but we may have
difficulty in securing new charters at attractive rates and durations. In the interim, we may have exposure to the volatile spot market which is highly competitive and subject to significant price
fluctuations. If we are unable to re-deploy a vessel, we will not receive any revenues from that vessel, and we will be required to pay expenses necessary to maintain the vessel in proper operating
condition as well as to service the debt attached to that vessel.
-
-
In 2018, three of our vessels are scheduled to be dry-docked. During the scheduled dry-docking, two of the
three vessels will undertake additional work which is expected to enhance their operational performance.
Dry-dockings of our vessels require
significant expenditure and result in loss of revenue as our vessels are off-hire during such periods. Any significant increase in either the number of off-hire days or in the costs of any repairs or
investments carried out during the dry-docking period could have a material adverse effect on our profitability and our cash flows. Given the potential for unforeseen issues arising during
dry-docking, we may not be able to predict accurately the time required to dry-dock any of our vessels. The
GasLog Santiago
, the
GasLog Sydney
and the
GasLog Seattle
are expected to carry out scheduled dry-dockings, of which two will
take place during the second quarter of 2018 and one in the fourth quarter of 2018. In addition to the normal cost of the scheduled dry-dockings for which provisions are made through our dry-dockings
reserves in our Distributable cash flow calculations, we plan to make certain investments in two of the vessels with the aim of enhancing their operational performance at a total cost of approximately
$28.0 million, which is expected to be capitalized as part of the respective vessel's cost. Of the total cost of approximately $28.0 million, approximately $4.0 million has already been paid.
The additional time required for such work is expected to be around ten days per vessel but this is yet to be finally verified.
-
-
The size of our fleet continues to
change.
Our historical results of operations, as reported under common control accounting, reflect changes in the size and composition of our
fleet due to certain vessel deliveries. For example, each of the
GasLog Shanghai
, the
GasLog Santiago
,
the
GasLog Sydney
and the
GasLog Seattle
were delivered from the shipyard during 2013, and the
Methane Rita Andrea
, the
Methane Jane Elizabeth
, the
Methane Alison
Victoria
, the
Methane Shirley Elisabeth
and the
Methane Heather Sally
were
acquired by GasLog during 2014, and did not have any historical operations in GasLog prior to that time. In addition, pursuant to the omnibus agreement, (i) we have the option to purchase from
GasLog five additional LNG carriers at fair market value as determined in accordance with the provisions of the omnibus agreement, and (ii) GasLog will be required to offer to us for purchase
at fair market value, as determined in accordance with the omnibus agreement, any LNG carrier with a cargo capacity greater than 75,000 cbm engaged in oceangoing LNG transportation that GasLog owns or
acquires if charters are secured with committed terms of five full years or more. Furthermore, we may grow through the acquisition in the future of other vessels or other LNG infrastructure assets
from other parties as part of our growth strategy.
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-
-
Our historical results of operations reflect administrative costs that are not necessarily indicative of
future costs.
The aggregate fees and expenses payable for services under the administrative services agreement, commercial management agreements
and ship management agreements for the year ended December 31, 2017 were $6.5 million, $4.3 million and $6.1 million, respectively. As the fees under the administrative
services agreement relate to the
GasLog Greece,
the
GasLog Geneva
and the
Solaris
only since their
acquisitions from GasLog in May, July and October 2017, respectively, and our board approved an increase in the service fee
payable to GasLog under the terms of the administrative services agreement with effective date January 1, 2018, the fees and expenses payable pursuant to this agreement will likely be higher
for future periods than reflected in our results of operations for the year ended December 31, 2017. Additionally, these fees and expenses will be payable without regard to our business,
results of operations and financial condition. For a description of the administrative services agreement, commercial management agreements and ship management agreements, see "Item 7. Major
Unitholders and Related Party TransactionsB. Related Party Transactions".
Industry Overview and Trends
Energy Prices
As referenced in "Item 3. Key InformationRisk Factors", global crude oil prices fell in 2014 and remained at relatively low
levels through the third quarter of 2017. Combined with a significant increase in natural gas supply, this in turn applied downward pressure on international natural gas prices and led to a narrowing
of the gap in natural gas pricing between different geographic regions.
As
a result largely of strong increases in demand for oil and for natural gas, as well as the actions taken by the Organization of Petroleum Exporting Countries and Russia to reduce
production of crude oil, global oil, gas and LNG prices have recovered in recent months. As of February 8, 2018, Brent crude oil was quoted at approximately $64.8 per barrel compared to
approximately $55.1 per barrel at this time last year. As of February 8, 2018, international natural gas prices were quoted at approximately $5.1 per million British thermal units ("mmbtu") for
the Title Transfer Index in North West Europe compared to $5.9 per mmbtu at the same time last year, and at approximately $8.2 per mmbtu for the Japan Korea Marker index in North Asia compared to $8.0
per mmbtu at the same time last year.
We
believe that the difference between international gas prices and gas prices in the U.S., where Henry Hub gas pricing was quoted with a range of
$2.4 - 3.7 per mmbtu during 2017, is positive for LNG shipping given the economic incentive for natural gas buyers and marketers to ship LNG over longer distances,
such as between sources of LNG in the U.S. and markets in Europe and Asia.
LNG Supply
The global seaborne trade of LNG cargoes was over 295 mtpa in 2017 and is projected by Wood Mackenzie to rise to approximately 320 mtpa in 2018.
This forecasted growth is expected to be driven mainly by new Australian, U.S. and Russian LNG export projects, with shipments commencing or ramping up from Wheatstone Train 2 (4.5 mtpa), Ichthys
Trains 1 and 2 (8.8 mtpa), Prelude (3.6 mtpa), Sabine Pass Train 4 (4.5 mtpa), Cove Point (5.3 mtpa) and Yamal (16.5 mtpa), all of which are scheduled to increase or start production over the next
12 months.
Looking
beyond 2018, there continues to be good visibility on the construction of new LNG production capacity through 2020 from projects in the U.S., Malaysia and Indonesia, with 42 mtpa
expected to be added in 2019 and 36 mtpa expected to be added in 2020 according to Wood Mackenzie. Of these countries, the U.S. is by far the most significant contributor to new supply, with more than
40 mtpa of new LNG production capacity anticipated to enter production during 2019 and 2020. U.S. projects scheduled to begin exports by the end of 2020 include Freeport (13.2 mtpa), Corpus
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Christi
(9 mtpa), Cameron (12 mtpa) and Elba Island (2.5 mtpa). The majority of U.S. volumes have already been contracted with most expected to be sold into the Asian and European markets.
LNG Demand
As a result of economic growth, energy and environmental policy and declines in domestic production of natural gas in certain countries, demand
for LNG increased strongly during 2017. China experienced especially strong growth with LNG imports increasing by 44% to approximately 38 mtpa in 2017. Other established markets where LNG
demand grew strongly in 2017
include South Korea, Spain, Portugal and France. In addition, in recent years Egypt, Jordan, Pakistan, Poland, Lithuania, Colombia, Malta, Jamaica and Jordan all imported their first LNG cargoes.
This
increase in the number of importing nations has been encouraged by low LNG prices, declining domestic production of gas in certain countries and attractive economics for FSRUs.
These are either custom-built vessels or LNG carriers that have been converted to operate as FSRUs and offer cheaper and quicker access to LNG markets. FSRUs remain a growing sector of the LNG trade
and they increase the number of potential LNG markets and trade routes. For example, in 2017, Pakistan inaugurated its second FSRU terminal with plans for at least two more. Several other countries
are steadily progressing FSRU projects, including Greece, Hong Kong, Bangladesh, Ivory Coast and Australia.
According
to Wood Mackenzie, there are currently 26 FSRUs on the water, with a further 12 being delivered over the next two to three years. However, the availability of on-the-water
FSRUs without charters and increasingly competitive tenders are putting FSRU charter rates under pressure. In addition, newbuild FSRU costs are at historical lows, with a comparable all-in cost to a
modern TFDE conversion. While this continues to be the case, the competitive advantage of an FSRU conversion is predominantly 'speed-to-market', targeting projects with start-ups prior to 2020.
Beyond
2020, signs are beginning to emerge of longer term incremental demand for LNG. The Area 1 Project in Mozambique has entered into off-take contracts with PTT of Thailand and Tohoku
Electric of Japan for 2.6 mtpa and 0.3 mtpa, respectively. Gunvor, the energy trading company based in Switzerland, has contracted to acquire up to 2.2 mtpa from the Fortuna project in Equatorial
Guinea. In the U.S., Edison of Italy and Shell have both contracted to acquire 1 mtpa over a 20-year period from the Calcasieu Pass project. Trafigura has contracted to acquire 1 mtpa from Cheniere
Marketing LLC for 15 years commencing in 2019 and China National Petroleum Company ("CNPC") has contracted to acquire up to 1.2 mpta from subsidiaries of Cheniere Energy, Inc for
up to 25 years commencing in 2018. These projects, as well as others in multiple regions of the world, continue to make progress towards taking a final investment decision ("FID"). Should any
further projects take FID, incremental LNG shipping capacity is likely to be required to transport the LNG produced by these projects. Nonetheless, there can be no assurance that any of these projects
will take FID or, if one or more FIDs are taken, that incremental shipping will be contracted or that GasLog will be successful in securing renewed or new charters at attractive rates and durations to
meet such LNG shipping requirements.
LNG Shipping Rates and Chartering Activity
As referenced in
"Energy Prices"
above, the significant fall in oil prices in 2014 combined with
increases in LNG supply led to substantial declines in the price of LNG and a lack of pricing differential between the Eastern and Western hemispheres. The resultant lack of inter basin trading led to
a significant shortening of the average duration of spot charters fixed throughout 2015
and 2016 and into 2017. This decrease in ton mile demand, together with the substantial increase in LNG shipping capacity as a result of deliveries of new LNG carriers since 2014, led to a significant
decline in average rates for new prompt spot and shorter-term LNG charters.
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The
latter half of 2017 saw this trend reversing, with charterers taking vessels for longer periods and/or at higher rates. According to Clarksons, spot rates for a TFDE vessel in the
Atlantic Basin increased to $85,000 per day in December 2017, an increase of approximately 90% over the same period in 2016. Spot charter terms also improved with round trip economics more common in
December 2017 and January 2018. In the Pacific Basin, reported rates were similar, attracting only a slight discount despite the greater availability of vessels in the region during the period.
The
principal catalyst for this increase in spot rates was strong LNG demand growth in Asia which led to greater ton-mile demand with many cargoes going from the U.S. to Asia, a voyage
of approximately 9,000 nautical miles through the Panama Canal, a routing option now available to LNG shipping since the widening of the canal in 2016. However, there are limitations on the ability of
LNG carriers to use the Panama Canal and the same voyage around Cape Horn is approximately 13,000 nautical miles. From the U.S. Gulf Coast to North West Europe, the distance is approximately 5,000
nautical miles. In recent years, the average global LNG voyage was in the range of 3,600 nautical miles to 4,000 nautical miles, and therefore any voyage in excess of this distance is likely to
increase the global average voyage distance and thus the demand for LNG carriers.
According
to Poten, approximately 335 charters of LNG vessels were fixed during 2017, compared with 273 in 2016. This significant increase in chartering activity is a positive sign for
the developing LNG shipping market and reflects among other trends the increasing activity of trading houses and LNG portfolio marketers.
Looking
forward, it is likely that part of the recent increase in demand for LNG has been seasonal and driven in particular by colder weather in North Asia during the fourth quarter of
2017 and early 2018. It is therefore possible that there will be a reduction in LNG demand and LNG prices after the end of the Northern Hemisphere winter trading period. In addition, according to Wood
Mackenzie, approximately 28 newbuild LNG carriers are due to be delivered during the first half of 2018 and a further 21 in the second half of 2018, representing an increase of 11% in the global LNG
carrier fleet. In early February, Clarksons were quoting spot rates for TFDE vessels of $70-75,000 per day in the Atlantic Basin and $75-80,000 per day in the Pacific Basin. The combination of these
factors may lead to a decrease in spot rates for LNG shipping which could harm our business, financial condition, results of operations and cash flows, including cash available for distributions to
unitholders.
Over
the longer term, if construction and commissioning of the new LNG production facilities referenced above in
"LNG Supply"
proceed as
expected by Wood Mackenzie, the incremental supply of LNG will increase the demand for LNG shipping capacity. Although much of the shipping required to transport this additional volume has been
contracted and is currently under construction, encouraging levels of tendering activity are being noted and we continue to expect to see a likely future shortfall of vessels required for the LNG
projects that have taken FID. A number of tenders for newbuild LNG carriers were carried out during 2017 as charterers looked to lock in their longer-term LNG shipping requirements and to take
advantage of current relatively low shipyard prices for newbuild vessels.
Nonetheless,
although there is broad market consensus that LNG shipping demand is expected to outstrip supply over the next few years, delays to start-up, or unexpected downtime, of LNG
supply projects may reduce demand for LNG shipping. Reduced demand for LNG or LNG shipping, or any reduction or limitation in LNG production capacity, could have a material adverse effect on our
ability to secure future time charters at attractive rates and durations for new ships we may order or acquire, or upon expiration or early termination of our current charter arrangements, which could
harm our business, financial condition, results of operations and cash flows, including cash available for distributions to unitholders, as well as our ability to meet certain of our debt covenants. A
sustained decline in charter rates could also adversely affect the market value of our ships, on which certain of the ratios and financial covenants with which we are required to comply are based.
72
Table of Contents
Global LNG Fleet
As of December 31, 2017, the global fleet of dedicated LNG carriers stood at 440 LNG Carriers (>100,000 cbm) on the water, and 93 LNG
Carriers (>100,000 cbm) on order, of which 78 have long-term charters. In 2017, approximately 30 LNG carriers were delivered and only ten orders were placed. This low level of ordering is commensurate
with the poor LNG shipping spot market conditions experienced between 2015 and the third quarter of 2017.
We
believe that the growing global demand for natural gas, especially in Asia, increasing supply from the U.S. and other regions, and other LNG market trends, including increased trading
of LNG leading to transportation inefficiencies with cargoes spending more time on the water, should support the existing order backlog for vessels and should also drive a need for additional LNG
carrier newbuildings. In addition, LNG project developers are typically large multinational oil and gas companies that have high standards for safety and reliability and a preference for modern LNG
carriers with fuel-efficient ship design and propulsion, which should support our ability to obtain new charters over new or less-experienced operators. Finally, the scrapping of older and less
efficient vessels and/or the
conversion of existing vessels to FSRUs could reduce the availability of LNG carriers. However, various factors, including changes in prices and demand for LNG, can materially affect the competitive
dynamics that currently exist and there can be no assurance that this need for additional carriers will materialize or that GasLog will be successful in securing renewed or new charters at attractive
rates and durations to meet such LNG shipping requirements.
The
statements in this "Industry Overview and Trends" section are forward-looking statements based on management's current expectations and certain material assumptions and, accordingly,
involve risks and uncertainties that could cause actual results, performance and outcomes to differ materially from those expressed herein. See "Item 3. Key InformationD. Risk
Factors" of this annual report.
A. Operating Results
Factors Affecting Our Results of Operations
We believe the principal factors that will affect our future results of operations include:
-
-
our ability to secure new multi-year charters, at economically attractive rates, for the five vessels with charters expiring in 2018 and 2019;
-
-
our ability to complete the scheduled dry-dockings of our three vessels in 2018 on time and within budget;
-
-
our ability to expand our fleet by maintaining a drop-down pipeline from GasLog, beyond the five existing "five year vessels" and the four
"five year vessel business opportunities";
-
-
our ability to maintain a good working relationship with our existing customer and our ability to increase the number of our customers through
the development of new working relationships;
-
-
the performance of our charterer;
-
-
the supply and demand relationship for LNG shipping services;
-
-
the effective and efficient technical management of our ships;
-
-
our ability to obtain acceptable debt financing in respect of our capital commitments;
-
-
our ability to obtain and maintain regulatory approvals and to satisfy technical, health, safety and compliance standards that meet our
customers' requirements; and
-
-
economic, regulatory, political and governmental conditions that affect shipping and the LNG industry, which include changes in the number of
new LNG importing countries and regions, as
73
Table of Contents
In
addition to the general factors discussed above, we believe certain specific factors have impacted, or will impact, our results of operations. These factors
include:
-
-
the hire rate earned by our ships including any of our ships that may trade in the spot market if we are unable to secure new multi-year
charters;
-
-
unscheduled off-hire days;
-
-
the level of our ship operating expenses, including crewing costs, insurance and maintenance costs;
-
-
our level of debt, the related interest expense and the timing of required payments of principal;
-
-
mark-to-market changes in interest rate swaps and foreign currency fluctuations; and
-
-
the level of our general and administrative expenses, including salaries and costs of consultants.
See
"Item 3. Key InformationD. Risk Factors" for a discussion of certain risks inherent in our business.
Principal Components of Revenues and Expenses
Revenues
Our revenues are driven primarily by the number of LNG carriers in our fleet, the amount of daily charter hire that they earn under time
charters and the number of operating days during which they generate revenues. These factors, in turn, are affected by our decisions relating to ship acquisitions and disposals, the amount of time
that our ships spend in dry-dock undergoing repairs, maintenance and upgrade work, the age, condition and technical specifications of our ships, as well as the relative levels of supply and demand in
the LNG carrier charter market. Under the terms of some of our time charter arrangements, the operating cost component of the daily hire rate is intended to correspond to the costs of operating the
ship. Accordingly, we will receive additional revenue under such time charters through an annual escalation of the operating cost component of the daily hire rate. We believe these adjustment
provisions can provide substantial protection against significant cost increases. See "Item 4. Information on the PartnershipB. Business OverviewShip Time
ChartersHire Rate Provisions" for a more detailed discussion of the hire rate provisions of our charter contracts.
Our
LNG carriers are employed through time charter or bareboat charter contracts. Revenues under our time charters are recognized when services are performed, revenue is earned and the
collection of the revenue is reasonably assured. The charter hire revenue is recognized on a straight-line basis over the term of the relevant time charter. We do not recognize revenue during days
when the ship is off-hire, unless it is recoverable from insurers. Advance payments under time charter contracts are classified as liabilities until such time as the criteria for recognizing the
revenue are met.
Vessel Operating Costs
We are generally responsible for ship operating expenses, which include costs for crewing, insurance, repairs, modifications and maintenance,
lubricants, spare parts and consumable stores and other miscellaneous expenses, as well as the associated cost of providing these items and services. However, as described above, the hire rate
provisions of our time charters are intended to reflect the operating costs borne by us. The charters on four vessels in our fleet contain provisions that are designed to reduce our exposure to
increases in operating costs, including review provisions and cost pass-through provisions. Ship operating expenses are recognized as expenses when incurred.
74
Table of Contents
Voyage Expenses and Commissions
Under our time charter arrangements, charterers bear substantially all voyage expenses, including bunker fuel, port charges and canal tolls, but
not commissions. Commissions are recognized as expenses on a pro rata basis over the duration of the period of the time charter.
Depreciation
We depreciate the cost of our ships on the basis of two components: a vessel component and a dry-docking component. The vessel component is
depreciated on a straight-line basis over the expected useful life of each ship, based on the cost of the ship less its estimated residual value. We estimate the useful lives of our ships to be
35 years from the date of delivery from the shipyard. Management estimates residual value of its vessels to be equal to the product of its lightweight tonnage ("LWT") and an estimated scrap
rate per LWT, which represents our estimate of the market value of the ship at the end of its useful life.
We
must periodically dry-dock each of our ships for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. All our
ships are required to be dry-docked for these inspections at least once every five years. At the time of delivery of a ship, we estimate the dry-docking component of the cost of the ship, which
represents the estimated cost of the ship's first dry-docking based on our historical experience with similar types of ships. The dry-docking component of the ship's cost is depreciated over five
years, in the case of new ships, and until the next dry-docking for secondhand ships, which is performed within five years from the vessel's last dry-docking unless the Partnership determines to
dry-dock the ships at an earlier date. In the event a ship is dry-docked at an earlier date, the unamortized dry-docking component is written off immediately.
General and Administrative Expenses
General and administrative expenses consist primarily of legal and other professional fees, board of directors' fees, share-based compensation
expense, directors' and officers' liability insurance, travel and accommodation expenses, commercial management fees and administrative fees payable to GasLog.
Financial Costs
We incur interest expense on the outstanding indebtedness under our credit facilities and the swap arrangements, if any, that qualify for
treatment as cash flow hedges for financial reporting purposes, which we include in our financial costs. Financial costs also include amortization of other loan issuance costs incurred in connection
with establishing our credit facilities.
Interest
expense and amortization of loan issuance costs are expensed as incurred.
Financial Income
Financial income consists of interest income, which will depend on the level of our cash deposits, investments and prevailing interest rates.
Interest income is recognized on an accrual basis.
Gain/(Loss) on Interest Rate Swaps
Any gain or loss derived from the movement in the fair value of the interest rate swaps that have not been designated as hedges, the ineffective
portion of changes in the fair value of the interest rate swaps that meet hedge accounting criteria, realized gain/loss on interest rate swaps held for trading, and the amortization of the cumulative
unrealized loss for the interest rate swaps in respect of which hedge accounting was discontinued, are presented as gain or loss on interest rate swaps in our consolidated statements of profit or
loss.
75
Table of Contents
Results of Operations
Our results set forth below are derived from the annual consolidated financial statements of the Partnership. Prior to the closing of our IPO,
we did not own any vessels. The presentation assumes that our business was operated as a separate entity prior to its inception. The transfer of the three initial vessels from GasLog to the
Partnership at the time of the IPO, the transfer of two vessels from GasLog to the Partnership in September 2014, the transfer of three vessels from GasLog to the Partnership in July 2015, the
transfer of one vessel from GasLog to the Partnership in November 2016 and the transfer of three vessels from GasLog to the Partnership in May, July and October 2017, respectively, were each accounted
for as reorganizations of entities under common control under IFRS. The consolidated financial statements include the accounts of the Partnership and its subsidiaries assuming that they are
consolidated from the date of their incorporation by GasLog as they were under the common control of GasLog. For the periods prior to the closing of the IPO, our financial position, results of
operations and cash flows reflected in our financial statements include all expenses allocable to our business, but may not be indicative of those that would have been incurred had we operated as a
separate public entity for all years presented or of future results.
Seven
of our LNG carriers, the
GasLog Shanghai
, the
GasLog Santiago,
the
GasLog Sydney
, the
GasLog Seattle,
the
Solaris,
the
Gaslog Greece
and the
GasLog Geneva,
were delivered and immediately commenced their time charters in
January, March, May and December 2013, July 2014, March and September 2016, respectively. In addition, the
Methane Rita Andrea
and the
Methane Jane Elizabeth
commenced their time charters upon their acquisition by GasLog in April 2014. Finally, the
Methane Alison
Victoria
, the
Methane Shirley Elisabeth
and the
Methane Heather Sally
commenced
their time charters upon their acquisition by GasLog in June 2014.
The
Partnership's historical results were retroactively restated to reflect the historical results of these acquired entities during the periods they were owned by GasLog.
Certain
numerical figures included in the below tables have been rounded. Discrepancies in tables between totals and the sums of the amounts listed may occur due to such rounding.
Year ended December 31, 2016 compared to the year ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS Common Control Reported
Results
|
|
|
|
2016
|
|
2017
|
|
Change
|
|
|
|
Restated
(1)
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars)
|
|
Statement of profit or loss
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
282,343
|
|
|
311,469
|
|
|
29,126
|
|
Vessel operating costs
|
|
|
(55,424
|
)
|
|
(60,015
|
)
|
|
(4,591
|
)
|
Voyage expenses and commissions
|
|
|
(3,842
|
)
|
|
(3,904
|
)
|
|
(62
|
)
|
Depreciation
|
|
|
(61,770
|
)
|
|
(67,726
|
)
|
|
(5,956
|
)
|
General and administrative expenses
|
|
|
(12,627
|
)
|
|
(14,508
|
)
|
|
(1,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
|
|
|
148,680
|
|
|
165,316
|
|
|
16,636
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial costs
|
|
|
(49,579
|
)
|
|
(53,602
|
)
|
|
(4,023
|
)
|
Financial income
|
|
|
205
|
|
|
998
|
|
|
793
|
|
(Loss)/gain on interest rate swaps
|
|
|
(6,837
|
)
|
|
121
|
|
|
6,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
92,469
|
|
|
112,833
|
|
|
20,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to Partnership's operations
|
|
|
77,270
|
|
|
94,117
|
|
|
16,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Restated
so as to reflect the historical financial results of GAS-eleven Ltd. acquired on May 3, 2017, GAS-thirteen Ltd. acquired
on July 3, 2017 and GAS-eight Ltd. acquired on October 20, 2017 from GasLog. See Note 1 to our audited consolidated financial statements included elsewhere in this annual
report.
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Table of Contents
During
the year ended December 31, 2016, we had an average of 11.0 vessels operating in our owned fleet having 3,984 operating days while during the year ended December 31,
2017, we had an average of 12.0 vessels operating in our owned fleet having 4,361 operating days.
Revenues:
Revenues increased by $29.2 million, or 10.3%, from $282.3 million for the year ended December 31, 2016
to
$311.5 million for the year ended December 31, 2017. The increase is mainly attributable to an increase of $29.5 million from the full operation of the
GasLog Greece
and the
GasLog Geneva
in the year ended December 31, 2017, delivered on
March 29, 2016 and September 30, 2016, respectively, an increase of $1.3 million due to the reduced off-hire days from scheduled dry-dockings (during the year ended
December 31, 2016 two vessels underwent dry-docking versus only one vessel during the year ended December 31, 2017), partially offset by a decrease of $0.9 million from the
remaining fleet and a decrease of $0.7 million due to one additional calendar day during the year ended December 31, 2016. The average daily hire rate increased from $70,869 for the year
ended December 31, 2016 to $71,416 for the year ended December 31, 2017.
Vessel Operating Costs:
Vessel operating costs increased by $4.6 million, or 8.3%, from $55.4 million for the year
ended
December 31, 2016 to $60.0 million for the year ended December 31, 2017. The increase is mainly attributable to the increase in operating days and an increase in crew wages,
mainly due to the unfavorable movement of the EUR/USD exchange rate. Daily operating costs per vessel increased from $14,415 per day during the year ended December 31, 2016 to $14,948 per day
during the year ended December 31, 2017.
Depreciation:
Depreciation increased by $5.9 million, or 9.5%, from $61.8 million for the year ended December 31,
2016 to
$67.7 million for the year ended December 31, 2017. The increase is attributable to the increase in the average number of vessels pursuant to the delivery of the
GasLog Greece
on March 29,
2016 and the
GasLog Geneva
on September 30, 2016.
General and Administrative Expenses:
General and administrative expenses increased by $1.9 million, or 15.1%, from
$12.6 million for
the year ended December 31, 2016 to $14.5 million for the year ended December 31, 2017. The increase is mainly attributable to an increase in administrative expenses of
$1.7 million for services under the administrative services agreement with GasLog related to the
GasLog Seattle
acquired from GasLog in November
2016 and the three vessels acquired from GasLog in May, July and October 2017.
Financial Costs:
Financial costs increased by $4.0 million, or 8.1%, from $49.6 million for the year ended
December 31, 2016 to
$53.6 million for the year ended December 31, 2017. The increase is attributable to a $9.2 million increase in interest expense on loans, partially set-off by the decrease in
amortization of loan fees of $5.1 million, mainly driven by a write-off of $5.6 million of unamortized loan fees associated with the
GasLog
Seattle
and the
Solaris
credit facilities that were refinanced in July 2016, and a decrease in other financial expenses of
$0.1 million. During the year ended December 31, 2016, we had an average of $1,144.7 million of outstanding indebtedness, with a weighted average interest rate of 3.2%, compared
to an average of $1,212.2 million of outstanding indebtedness with a weighted average interest rate of 3.8% during the year ended December 31, 2017.
Loss/(Gain) on Interest Rate Swaps:
Loss on interest rate swaps decreased by $6.9 million, from a loss of $6.8 million
for the year
ended December 31, 2016 to a gain of $0.1 million for the year ended December 31, 2017. The decrease is attributable to a $3.7 million decrease in loss from the
mark-to-market valuation of the interest rate swaps which were carried at fair value through profit or loss, which reflected a loss of $1.6 million for the year ended December 31, 2016
as compared to a gain of $2.2 million for the year ended December 31, 2017, a $2.5 million decrease in recycled loss of cash
flow hedges reclassified to profit or loss resulting from the termination of the Partnership's interest rate swaps in July 2016 and a decrease of $0.7 million in realized loss on interest rate
swaps held for trading.
77
Table of Contents
Profit for the Year:
Profit for the year increased by $20.3 million, or 21.9%, from $92.5 million for the year ended
December 31, 2016 to $112.8 million for the year ended December 31, 2017, as a result of the aforementioned factors.
Profit Attributable to the Partnership:
Profit Attributable to the Partnership for the year increased by $16.8 million, or
21.7% from
$77.3 million for the year ended December 31, 2016 to $94.1 million for the year ended December 31, 2017. The increase is mainly attributable to the increase in operating
days (2,944 operating days in the year ended December 31, 2016 as compared to 3,764 operating days in the year ended December 31, 2017), which was partially offset by an increase of
$17.4 million in net financial costs (comprising financial costs, net of gain on interest rate swaps and financial income), mainly resulting from the aforementioned valuation of the interest
rate swaps and the increased weighted average outstanding debt, and an increase of $1.8 million in administrative fees resulting from the acquisitions of the
GasLog
Seattle
, the
GasLog Greece
, the
GasLog Geneva
and the
Solaris
.
Specifically,
the acquisitions of the
GasLog Seattle
on November 1, 2016, the
GasLog
Greece
on May 3, 2017, the
GasLog Geneva
on July 3, 2017 and the
Solaris
on October 20, 2017 resulted in an increase
in profit from operations of $36.5 million. In addition, the Profit Attributable to
the Partnership was further affected by (a) an increase in revenues of $0.7 million mainly due to the reduced off-hire days from the scheduled dry-dockings of our vessels, partially
offset by the one additional calendar day during the year ended December 31, 2016, (b) an increase in vessel operating expenses of $1.2 million deriving mainly from an increase in
crew wages and various repairs and technical certifications, (c) an increase in general and administrative expenses of $1.8 million due to the administrative fees for the four vessels
acquired by the Partnership, (d) an increase in financial costs of $14.7 million due to the outstanding debt of the acquired vessels after their respective drop-downs to the Partnership
and (e) a decrease of $3.5 million in gain on interest rate swaps signed in November 2016 and July 2017.
The
above discussion of revenues, operating expenses, general and administrative expenses, financial costs and gain on interest rate swaps in relation to the Profit Attributable to the
Partnership are non-GAAP measures that exclude amounts related to vessels currently owned by the Partnership for the periods prior to their respective transfer to GasLog Partners from GasLog. See
"Item 3. Key InformationA. Selected Financial DataA.2. Partnership Performance
Results" for further discussion of these "Partnership Performance Results" and a reconciliation to the most directly comparable IFRS reported results (the "IFRS Common Control Reported Results").
78
Table of Contents
Year ended December 31, 2015 compared to the year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS Common Control Reported
Results
|
|
|
|
2015
|
|
2016
|
|
Change
|
|
|
|
Restated
(1)
|
|
Restated
(1)
|
|
|
|
|
|
(in thousands of U.S. dollars)
|
|
Statement of profit or loss
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
248,501
|
|
|
282,343
|
|
|
33,842
|
|
Vessel operating costs
|
|
|
(52,582
|
)
|
|
(55,424
|
)
|
|
(2,842
|
)
|
Voyage expenses and commissions
|
|
|
(3,313
|
)
|
|
(3,842
|
)
|
|
(529
|
)
|
Depreciation
|
|
|
(55,693
|
)
|
|
(61,770
|
)
|
|
(6,077
|
)
|
General and administrative expenses
|
|
|
(11,798
|
)
|
|
(12,627
|
)
|
|
(829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
|
|
|
125,115
|
|
|
148,680
|
|
|
23,565
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial costs
|
|
|
(35,505
|
)
|
|
(49,579
|
)
|
|
(14,074
|
)
|
Financial income
|
|
|
35
|
|
|
205
|
|
|
170
|
|
Loss on interest rate swaps
|
|
|
(5,895
|
)
|
|
(6,837
|
)
|
|
(942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
83,750
|
|
|
92,469
|
|
|
8,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit attributable to Partnership's operations
|
|
|
65,040
|
|
|
77,270
|
|
|
12,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Restated
so as to reflect the historical financial results of GAS-eleven Ltd. acquired on May 3, 2017, GAS-thirteen Ltd. acquired
on July 3, 2017 and GAS-eight Ltd. acquired on October 20, 2017 from GasLog. See Note 1 to our audited consolidated financial statements included elsewhere in this annual
report.
During
the year ended December 31, 2015, we had an average of 10.0 vessels operating in our owned fleet having 3,585 operating days while during the year ended December 31,
2016, we had an average of 11.0 vessels operating in our owned fleet having 3,984 operating days.
Revenues:
Revenues increased by $33.8 million, or 13.6%, from $248.5 million for the year ended December 31, 2015
to
$282.3 million for the year ended December 31, 2016. The increase is mainly attributable to an increase of $30.7 million from the deliveries of the
GasLog
Greece
on March 29, 2016 and the
GasLog Geneva
on September 30, 2016, which resulted in an increase in operating
days, an increase of $1.6 million due to the reduced off-hire days from scheduled dry-dockings (during the year ended December 31, 2015 three vessels underwent dry-docking versus two
vessels during the year ended December 31, 2016), an increase of $0.8 million from the remaining fleet and an increase of $0.7 million due to one additional calendar day during
the year ended December 31, 2016. The average daily hire rate increased from $69,317 for the year ended December 31, 2015 to $70,869 for the year ended December 31, 2016.
Vessel Operating Costs:
Vessel operating costs increased by $2.8 million, or 5.3%, from $52.6 million for the year
ended
December 31, 2015 to $55.4 million for the year ended December 31, 2016. The increase is mainly attributable to an increase of $2.7 million in technical expenses related to
new technical
equipment, various scheduled repairs and technical certifications. Daily operating costs per vessel marginally increased from $14,406 per day during the year ended December 31, 2015 to $14,415
per day during the year ended December 31, 2016.
Voyage expenses and commissions:
Voyage expenses and commissions increased by $0.5 million, or 15.2%, from $3.3 million
for the year
ended December 31, 2015 to $3.8 million for the year ended December 31, 2015. The increase is mainly attributable to the increased operating days in the year ended
December 31, 2016.
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Depreciation:
Depreciation increased by $6.1 million, or 11.0%, from $55.7 million for the year ended December 31,
2015 to
$61.8 million for the year ended December 31, 2016. The increase is attributable to the deliveries of the
GasLog Greece
on
March 29, 2016 and the
GasLog Geneva
on September 30, 2016.
General and Administrative Expenses:
General and administrative expenses increased by $0.8 million, or 6.8%, from
$11.8 million for the
year ended December 31, 2015 to $12.6 million for the year ended December 31, 2016. The increase is mainly attributable to an increase in administrative expenses of
$1.0 million for services under the administrative services agreement with GasLog related to the three vessels acquired from GasLog in July 2015 and the
GasLog
Seattle
acquired from GasLog in November 2016, an increase in commercial management fees of $0.5 million and an increase of $0.3 million in the non-cash expense
recognized in respect of the share-based compensation, partially offset by a decrease of $1.0 million in legal and professional fees mainly due to consultancy fees charged in 2015.
Financial Costs:
Financial costs increased by $14.1 million, or 39.7%, from $35.5 million for the year ended
December 31, 2015
to $49.6 million for the year ended December 31, 2016. The increase is mainly attributable to the increase in amortization of loan fees of $6.9 million, mainly driven by a
write-off of $5.6 million of unamortized loan fees associated with the
GasLog Seattle
and the
Solaris
credit facilities that were refinanced in July
2016, the $6.5 million increase in interest expense on loans, the increase in commitment
fees of $0.6 million mainly for the revolving credit facility with GasLog and an increase in other financial expenses of $0.1 million. During the year ended December 31, 2015, we
had an average of $1,058.2 million of outstanding indebtedness, with a weighted average interest rate of 2.9%,
compared to an average of $1,144.7 million of outstanding indebtedness with a weighted average interest rate of 3.2% during the year ended December 31, 2016.
Loss on Interest Rate Swaps:
Loss on interest rate swaps increased by $0.9 million, or 15.3% from $5.9 million for the
year ended
December 31, 2015 to $6.8 million for the year ended December 31, 2016. The increase is attributable to a $1.9 million increase in recycled loss of cash flow hedges
reclassified to profit or loss resulting from the termination of the Partnership's interest rate swaps in July 2016, a $1.3 million increase in loss from the mark-to-market valuation of the
interest rate swaps which were carried at fair value through profit or loss, partially offset by a decrease of $2.3 million in realized loss on interest rate swaps held for trading.
Profit for the Year:
Profit for the year increased by $8.7 million, or 10.4%, from $83.8 million for the year ended
December 31,
2015 to $92.5 million for the year ended December 31, 2016, as a result of the aforementioned factors.
Profit Attributable to the Partnership:
Profit attributable to the Partnership for the year increased by $12.3 million, or
18.9%, from
$65.0 million for the year ended December 31, 2015 to $77.3 million for the year ended December 31, 2016. The increase is mainly attributable to the increase in operating
days (2,377 operating days in the year ended December 31, 2015 as compared to 2,944 operating days in the year ended December 31, 2016) and the unrealized gain on interest rate swaps.
Specifically,
the acquisition of the
Methane Alison Victoria
, the
Methane Shirley
Elisabeth
and the
Methane Heather Sally
on July 1, 2015 and the acquisition of the
GasLog
Seattle
on November 1, 2016 resulted in an increase in profit from operations by $21.2 million. In addition, the Profit Attributable to the Partnership was
further affected by (a) a decrease in revenues of $2.6 million mainly due to the off-hire days from the scheduled dry-docking of two of our vessels, partially offset by the one
additional calendar day during the year ended December 31, 2016, (b) an increase in vessel operating expenses of $1.4 million deriving mainly from scheduled repairs and technical
specifications during the dry-dockings of two of our vessels, (c) an increase in financial costs including realized loss on interest rate swaps of
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$9.0 million
due to the outstanding debt of the
GasLog Seattle
after its drop-down to the Partnership and (d) an increase of
$4.1 million in unrealized gain on interest rate swaps signed in November 2016.
The
above discussion of revenues, operating expenses, financial costs and unrealized gain on interest rate swaps in relation to the Profit Attributable to the Partnership are non-GAAP
measures that exclude amounts related to vessels currently owned by the Partnership for the periods prior to their respective transfer to GasLog Partners from GasLog. See "Item 3. Key
InformationA. Selected Financial DataA.2. Partnership Performance Results" for further discussion of these "Partnership Performance Results" and a reconciliation to the most
directly comparable IFRS reported results (the "IFRS Common Control Reported Results").
Customers
We currently derive all of our revenues from subsidiaries of Shell.
Seasonality
Since our vessels were employed under fixed-rate charter arrangements, seasonal trends did not impact the revenues during the year ended
December 31, 2017. However, to the extent that one or more of our vessels cease to be employed under fixed rate charter arrangements in the future, there is likely to be some seasonality in our
revenues.
B. Liquidity and Capital Resources
We operate in a capital-intensive industry and we expect to finance the purchase of additional vessels and other capital expenditures through a
combination of borrowings from commercial banks, cash generated from operations and debt and equity financings. In addition to paying distributions, our other liquidity requirements relate to
servicing our debt, funding investments, funding working capital and maintaining cash reserves against fluctuations in operating cash flows. Our funding and treasury activities are intended to
maximize investment returns while maintaining appropriate liquidity.
On
January 27, 2017, GasLog Partners completed an equity offering of 3,750,000 common units. In addition, the option to purchase additional units was partially exercised by the
underwriter on
February 24, 2017, resulting in 120,000 additional units being sold at the same price. In connection with the offering, the Partnership also issued 78,980 general partner units to its general
partner in order for GasLog to retain its 2.0% general partner interest at the public offering price of $20.50 per unit. The total net proceeds after deducting underwriting discounts and other
offering expenses were $79.8 million.
On
April 3, 2017, the Partnership signed a deed of termination with respect to its revolving credit facility with GasLog. On the same date, the Partnership entered into a new
unsecured five-year term loan of $45.0 million and a new five-year revolving credit facility of $30.0 million with GasLog. On April 5, 2017, an amount of $45.0 million
under the term loan facility and an amount of $15.0 million under the revolving credit facility were drawn by the Partnership and were used on the same date to prepay $60.1 million of
the outstanding debt of GAS-nineteen Ltd., GAS-twenty Ltd. and GAS-twenty one Ltd. under the junior tranche of the credit agreement that subsidiaries of the Partnership and GasLog
entered into on February 18, 2016 (the "Five Vessel Refinancing"), which would have been originally due in April 2018. The outstanding amount of $15.0 million under the revolving credit
facility was repaid by the Partnership on May 22, 2017, following the issuance of the Series A Preference Units.
On
May 3, 2017, in connection with the acquisition of GAS-eleven Ltd., the entity that owns the
GasLog Greece
, the
Partnership paid GasLog $66.6 million representing the difference between the $219.0 million aggregate purchase price and the $151.4 million of outstanding indebtedness of the
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acquired
entity assumed by GasLog Partners less an adjustment of $1.0 million in order to maintain the agreed working capital position in the acquired entity of $1.0 million.
On
May 15, 2017, the Partnership completed a public offering of 5,750,000 8.625% Series A Preference Units (including 750,000 units issued upon the exercise in full by the
underwriters of their option to purchase additional Series A Preference Units), liquidation preference $25.00 per unit, at a price to the public of $25.00 per preference unit. The net proceeds
from the offering after deducting underwriting discounts, commissions and other offering expenses were $138.8 million. The Series A Preference Units are listed on the New York Stock
Exchange under the symbol "GLOP PR A".
On
May 16, 2017, GasLog Partners commenced its ATM Programme under which the Partnership may, from time to time, raise equity through the issuance and sale of new common units
having an aggregate offering price of up to $100.0 million in accordance with the terms of an equity distribution agreement (the "Equity Distribution Agreement") entered into on the same date.
Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC have agreed
to act as sales agents. On November 3, 2017, the Partnership entered into
the Amended and Restated Equity Distribution Agreement to increase the size of the ATM Programme to $144.0 million and to include UBS Securities LLC as a sales agent.
From
establishment of the ATM Programme through December 31, 2017, GasLog Partners issued and received payment for 2,737,405 units at a weighted average price of $22.97 per common
unit for total gross proceeds of $62.9 million and total net proceeds of $61.2 million, after broker commissions of $0.8 million and other expenses of $0.9 million. In
connection with the issuance of common units under the ATM Programme during this period, the Partnership also issued 55,866 general partner units to its general partner in order for GasLog to retain
its 2.0% general partner interest. The net proceeds from the issuance of the general partner units were $1.3 million.
On
July 3, 2017, in connection with the acquisition of GAS-thirteen Ltd., the entity that owns the
GasLog Geneva
, the
Partnership paid GasLog $54.9 million representing the difference between the $211.0 million aggregate purchase price and the $155.0 million of outstanding indebtedness of the
acquired entity assumed by GasLog Partners less an adjustment of $1.1 million in order to maintain the agreed working capital position in the acquired entity of $1.0 million.
On
October 20, 2017, in connection with the acquisition of GAS-eight Ltd., the entity that owns the
Solaris
, the Partnership
paid GasLog $70.6 million representing the difference between the $185.9 million aggregate purchase price and the $116.5 million of outstanding indebtedness of the acquired entity
assumed by GasLog Partners less an adjustment of $1.2 million in order to maintain the agreed working capital position in the acquired entity of $1.0 million.
On
January 5, 2018, the Partnership prepaid the remaining $29.8 million of GAS-nineteen Ltd., the entity that owns the
Methane
Alison-Victoria
, GAS-twenty Ltd., the entity that owns the
Methane Shirley Elisabeth
, and GAS-twenty one Ltd., the
entity that owns the
Methane Heather Sally
, debt, which would have been originally due in April 2018. The prepaid debt was associated with the Junior
Tranche of the Five Vessel Facility, which was terminated on January 5, 2018.
On
January 17, 2018, the Partnership completed a public offering of 4,600,000 8.200% Series B Preference Units (including 600,000 units issued upon the exercise in full by
the underwriters of their option to purchase additional Series B Preference Units), liquidation preference $25.00 per unit, at a price to the public of $25.00 per preference unit. The net
proceeds from the offering after deducting underwriting discounts, commissions and other offering expenses were $111.0 million. The Series B Preference Units are listed on the New York
Stock Exchange under the symbol "GLOP PR B".
The
Partnership has entered into four interest rate swap agreements with GasLog at a notional value of $470.0 million in aggregate, maturing between 2020 and 2022. As of
December 31, 2017, the Partnership has hedged 41.7% (excluding amounts drawn under the New Sponsor Credit Facility) of its floating interest rate exposure on its outstanding debt at a weighted
average interest rate of approximately 1.7% (excluding margin).
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As of December 31, 2017, we had $142.5 million of cash and cash equivalents.
As
of December 31, 2017, we had an aggregate of $1,155.6 million of indebtedness outstanding under our credit facilities. An amount of $103.8 million of outstanding
debt is repayable within one year.
Working Capital Position
As of December 31, 2017, our current assets totaled $151.3 million while current liabilities totaled $148.2 million,
resulting in a positive working capital position of $3.1 million.
Taking
into account generally expected market conditions, we anticipate that cash flow generated from operations will be sufficient to fund our operations, including our working capital
requirements, and to make the required principal and interest payments on our indebtedness during the next 12 months.
Cash Flows
Year ended December 31, 2016 compared to the year ended December 31, 2017
The following table summarizes our net cash flows from operating, investing and financing activities for the years indicated:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
2017
|
|
|
|
Restated
(1)
|
|
|
|
|
|
(in thousands of
U.S. dollars)
|
|
Net cash provided by operating activities
|
|
$
|
191,049
|
|
$
|
180,127
|
|
Net cash (used in)/provided by investing activities
|
|
|
(341,946
|
)
|
|
2,226
|
|
Net cash provided by/(used in) financing activities
|
|
|
140,660
|
|
|
(96,312
|
)
|
-
(1)
-
Restated
so as to reflect the historical financial results of GAS-eleven Ltd., GAS-thirteen Ltd. and GAS-eight Ltd., acquired on
May 3, 2017, July 3, 2017 and October 20, 2017, respectively, from GasLog. See Note 1 to our audited consolidated financial statements included elsewhere in this annual
report.
Net Cash Provided by Operating Activities:
Net cash provided by operating activities decreased by $10.9 million, from $191.0 million in the year ended December 31,
2016 to $180.1 million in the year ended December 31, 2017. The decrease of $10.9 million is attributable to a $18.5 million movement in working capital accounts, an
increase of $16.0 million in cash paid for interest and an increase of $6.6 million in vessel operating costs, voyage expenses and commissions and general and administrative expenses,
partially
offset by an increase of $29.1 million in revenues and a net increase of $1.1 million from the remaining movements.
Net Cash (Used in)/Provided by Investing Activities:
Net cash used in investing activities decreased by $344.1 million, from net cash used in investing activities of $341.9 million in
the year ended December 31, 2016 to net cash provided by investing activities of $2.2 million in the year ended December 31, 2017. The decrease of $344.1 million is
attributable to a decrease of net cash used in payments for vessels of $332.9 million, an increase in net cash from short-term investments of $10.5 million and an increase in financial
income received of $0.7 million.
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Net Cash Provided by/(Used in) Financing Activities:
Net cash provided by financing activities decreased by $237.0 million, from net cash provided by financing activities of
$140.7 million in the year ended December 31, 2016 to net cash used in financing activities of $96.3 million in the year ended December 31, 2017. The decrease of
$237.0 million is attributable to decreased proceeds from borrowings of $826.8 million, an increase of $124.0 million in cash distribution to GasLog in exchange for contribution
of net assets and an increase in distributions of $24.7 million, partially offset by a decrease of $471.4 million in bank loan repayments, increased net public offering proceeds of
$228.1 million, a decrease of $17.6 million in payments of loan issuance costs, a decrease of $10.8 million in payments of dividends due to GasLog prior to vessels' drop-down to
the Partnership and net payments of $10.6 million related to the termination of our interest rate swap agreements in July 2016.
Year ended December 31, 2015 compared to the year ended December 31, 2016
The following table summarizes our net cash flows from operating, investing and financing activities for the years indicated:
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2015
|
|
2016
|
|
|
|
Restated
(1)
|
|
Restated
(1)
|
|
|
|
(in thousands of
U.S. dollars)
|
|
Net cash provided by operating activities
|
|
$
|
136,975
|
|
$
|
191,049
|
|
Net cash provided by/(used in) investing activities
|
|
|
13,722
|
|
|
(341,946
|
)
|
Net cash (used in)/provided by financing activities
|
|
|
(136,267
|
)
|
|
140,660
|
|
-
(1)
-
Restated
so as to reflect the historical financial results of GAS-eleven Ltd., GAS-thirteen Ltd. and GAS-eight Ltd., acquired on
May 3, 2017, July 3, 2017 and October 20, 2017, respectively, from GasLog. See Note 1 to our audited consolidated financial statements included elsewhere in this annual
report.
Net Cash Provided by Operating Activities:
Net cash provided by operating activities increased by $54.1 million, from $137.0 million in the year ended December 31,
2015 to $191.0 million in the year ended December 31, 2016. The increase of $54.1 million is attributable to an increase of $33.8 million in revenues, an increase of
$22.5 million caused by movements in working capital accounts and a decrease of $2.3 million in realized loss from interest rate swaps, partially offset by an increase of
$4.2 million in vessel operating costs, voyage expenses and commissions and general and administrative expenses and a net decrease of $0.3 million from the remaining movements.
Net Cash Provided by/(Used in) Investing Activities:
Net cash provided by investing activities decreased by $355.6 million, from net cash provided by investing activities of
$13.7 million in the year ended December 31, 2015 to net cash used in investing activities of $341.9 million in the year ended December 31, 2016. The decrease of
$355.6 million is mainly attributable to an increase of net cash used in payments for vessels of $329.6 million and a decrease in net cash from short-term investments of
$26.2 million.
Net Cash (Used in)/Provided by Financing Activities:
Net cash used in financing activities decreased by $277.0 million, from net cash used in financing activities of $136.3 million in
the year ended December 31, 2015 to net cash provided by financing activities of $140.7 million in the year ended December 31, 2016. The decrease of $277.0 million is
attributable to proceeds from borrowings of $886.8 million in the year ended December 31, 2016, a
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Table of Contents
decrease
of $104.5 million in cash remittance to GasLog in exchange for contribution of net assets and a decrease of $4.7 million in amounts due to unitholders, partially offset by an
increase of $551.7 million in bank loan repayments, decreased net public offering proceeds of $122.0 million, an increase of $18.3 million in payments of loan issuance costs, an
increase in distributions of $14.4 million, net payments of $10.6 million related to the termination of our interest rate swap agreements in July 2016 and an increase of
$2.0 million in payments of dividends due to GasLog prior to vessels' drop-down to the Partnership.
Borrowing Activities
Credit Facilities
Below is a summary of certain provisions of the Partnership's credit facilities outstanding as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility Name
|
|
Lender(s)
|
|
Subsidiary Party
(Collateral Ship)
|
|
Outstanding
Principal Amount
|
|
Interest Rate
|
|
Maturity
|
|
Payment of
Principals
Installments
Schedule
|
Facility Agreement dated November 12, 2014 among GAS-three Ltd., GAS-four Ltd., GAS-five Ltd., GAS-sixteen Ltd. and GAS-seventeen Ltd. as borrowers, and the financial institutions party
thereto, or the "Partnership Facility"
|
|
Citibank, N.A., London Branch, Nordea Bank Finland plc, London Branch, DVB Bank America N.V., ABN Amro Bank N.V., Skandinaviska Enskilda Banken AB (publ), BNP Paribas
|
|
GAS-three Ltd. (
GasLog Shanghai
), GAS-four Ltd. (
GasLog Santiago
), GAS-five Ltd. (
GasLog
Sydney
), GAS-sixteen Ltd. (
Methane Rita Andrea
), GAS-seventeen Ltd. (
Methane Jane Elizabeth
)
|
|
$382.5 million
|
|
LIBOR + applicable margin
|
|
|
2019
|
|
8 consecutive quarterly installments of $5.625 million and a balloon payment of $337.5 million together with the final quarterly payment
|
New Sponsor Credit Facility
|
|
GasLog Ltd.
|
|
GasLog Partners LP
|
|
Unsecured 5 Year Term Loan: $45.0 million 5 Year Revolving Credit Facility: nil
|
|
Fixed interest rate
|
|
|
2022
|
|
Term loan facility: Balloon payment of $45.0 million due in March 2022 without intermediate payments
Revolving facility of $30.0 million available in minimum
amounts of $2.0 million which are repayable within a period of six months after the respective drawdown date, subject to automatic renewal if not repaid.
|
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Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility Name
|
|
Lender(s)
|
|
Subsidiary Party
(Collateral Ship)
|
|
Outstanding
Principal Amount
|
|
Interest Rate
|
|
Maturity
|
|
Payment of
Principals
Installments
Schedule
|
Five Vessel Refinancing
|
|
ABN Amro Bank N.V., DNB (UK) Ltd., DVB Bank America N.V., Commonwealth Bank of Australia, ING Bank N.V., London Branch, Credit Agricole Corporate and Investment Bank and National Australia Bank
Limited
|
|
GAS-nineteen Ltd.
(Methane Alison Victoria)
GAS-twenty Ltd.
(Methane Shirley Elisabeth)
GAS- twenty one Ltd.
(Methane Heather Sally)
|
|
Senior Tranche: $189.8 million Junior Tranche: $29.8 million
|
|
LIBOR + applicable margin
|
|
|
2021
|
|
Senior Tranche: 14 consecutive quarterly installments of $4.5 million and a balloon payment of $126.5 million together with the final quarterly installment. Junior Tranche: Balloon payment of $29.8 million
due in April 2018 without intermediate payments. On January 5, 2018 the remaining $29.8 million was prepaid and the tranche was terminated.
|
GasLog Seattle
and
Solaris
Term and Revolving Facilities
|
|
Citigroup Global Market Limited, Credit Suisse AG, Nordea Bank AB, London Branch, Skandinaviska Ensklida AB (publ), HSBC Bank plc, ING Bank N.V., London Branch, Danmarks Skibskredit A/S, The Korea
Development Bank and DVB Bank America N.V.
|
|
GAS-seven Ltd.
(GasLog Seattle),
GAS-eight Ltd. (
Solaris
)
|
|
Term Loan: $231.3 million Revolving Loan: nil
|
|
LIBOR + applicable margin
|
|
|
2021
|
|
Term Loan: 8 semi-annual installments of $7.6 million and a balloon payment of $170.8 million due together with the last installment in July 2021. Revolving Facility: $25.9 million, currently undrawn,
can be drawn on a fully revolving basis in minimum amounts of $5.0 million until 6 months prior to the maturity date in July 2021.
|
Assumed October 2015 Facility
|
|
Citibank, N.A., London Branch, Nordea Bank AB, London Branch, The Export-Import Bank of Korea, Bank of America, National Association, BNP Paribas, Crédit Agricole Corporate and Investment Bank, Credit Suisse AG,
HSBC Bank plc, ING Bank N.V., London Branch, KEB HANA Bank, London Branch, KfW IPEX-Bank GmbH, National Australia Bank Limited, Oversea-Chinese Banking Corporation Limited, Société Générale and The Korea
Development Bank
|
|
GAS-eleven Ltd. (
GasLog Greece
), GAS-thirteen Ltd. (
GasLog Geneva
)
|
|
$295.0 million
|
|
LIBOR + applicable margin
|
|
|
2028
|
|
GAS-eleven Ltd.: 16 consecutive semi-annual installments of $5.8 million, a balloon payment due in 2026 of $36.3 million and thereafter 4 consecutive semi-annual installments of $4.2 million until March 2028.
GAS-thirteen Ltd.: 17 consecutive semi-annual installments of $5.7 million, a balloon payment due in 2026 of $35.8 million and thereafter 4 consecutive semi-annual
installments of $4.2 million until September 2028.
|
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Table of Contents
Partnership Facility
The Partnership Facility is secured as follows:
-
-
first priority mortgages over the vessels owned by the borrowers;
-
-
guarantees from us and our subsidiary GasLog Partners Holdings;
-
-
a pledge or a negative pledge of the share capital of the borrowers; and
-
-
a first priority assignment of all earnings and insurances related to the vessels owned by the borrowers.
Our
Partnership Facility imposes certain operating and financial restrictions on our subsidiaries, which generally limit our subsidiaries' ability to, among other
things:
-
-
incur additional indebtedness, create liens or provide guarantees;
-
-
provide any form of credit or financial assistance to, or enter into any non-arms' length transactions with, us or any of our affiliates;
-
-
sell or otherwise dispose of assets, including our ships;
-
-
engage in merger transactions;
-
-
enter into, terminate or amend any charter;
-
-
amend our shipbuilding contracts, if any;
-
-
change the manager of our ships;
-
-
undergo a change in ownership; or
-
-
acquire assets, make investments or enter into any joint venture arrangements outside of the ordinary course of business.
Our
Partnership Facility also imposes specified financial covenants that apply to us and our subsidiaries on a consolidated basis. These financial covenants include the
following:
-
-
the aggregate amount of all unencumbered cash and cash equivalents must be no less than the higher of 3.0% of total indebtedness or
$15.0 million;
-
-
our total indebtedness divided by our total capitalization must not exceed 60.0%;
-
-
the ratio of EBITDA over our debt service obligations (including interest and debt repayments) on a trailing 12 months' basis must be no
less than 110.0%; and
-
-
we are permitted to declare or pay any dividends or distributions subject to no event of default having occurred or occurring as a consequence
of the payment of such dividends or distributions.
Our
Partnership Facility contains customary events of default, including non-payment of principal or interest, breach of covenants or material inaccuracy of representations, default
under other material indebtedness and bankruptcy, as well as an event of default in the event of the cancellation, rescission, frustration or withdrawal of a charter agreement prior to its scheduled
expiration. In addition, the Partnership Facility contains covenants requiring that the aggregate fair market value of the vessels securing the facility remains above 120.0% of the aggregate amount
outstanding under the facility. In the event that the value of the vessels falls below the threshold, we could be required to provide the lender with additional security or to prepay a portion of the
outstanding loan balance, which could negatively impact our liquidity. Compliance with the financial covenants is reported on a semi-annual basis.
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New Sponsor Credit facility
Upon completion of the IPO on May 12, 2014, the Partnership entered into a $30.0 million revolving credit facility with GasLog
(the "Old Sponsor Credit Facility"), to be used for general partnership purposes. The credit facility was for a term of 36 months, unsecured and bore interest at a rate of 5.0% per annum, with
no commitment fee for the first year. After the first year, the interest increased to a rate of 6.0% per annum, with an annual 2.4% commitment fee on the undrawn balance.
On
April 3, 2017, GasLog Partners signed a deed of termination with respect to the Old Sponsor Credit Facility. On the same date, GasLog Partners entered into the New Sponsor
Credit Facility with GasLog for a new unsecured five-year term loan of $45.0 million and a new five-year revolving credit facility of $30.0 million. On April 5, 2017, an amount of
$45.0 million under the term loan facility and an amount of $15.0 million under the revolving credit facility were drawn by the Partnership, with the latter fully repaid on
May 22, 2017. The New Sponsor Credit Facility is unsecured and the revolving credit facility provides for an availability period of five years. Each borrowing under the New Sponsor Credit
Facility accrues interest at a rate of 9.125% per annum with an annual 1.0% commitment fee on the undrawn balance.
The
New Sponsor Facility contains customary events of default, including non-payment of principal or interest, breach of covenants or material inaccuracy of representations, default
under other material indebtedness and bankruptcy. In addition, the New Sponsor Facility covenants require that at all times GasLog must continue to control, directly or indirectly, the affairs or
composition of the Partnership's board of directors and any amendment to our partnership agreement, in the reasonable opinion of the lender, must not be adverse to its interests in connection with the
New Sponsor Credit Facility.
Five Vessel Refinancing
On February 18, 2016, subsidiaries of the Partnership and GasLog entered into credit agreements to refinance the debt maturities that
were scheduled to become due in 2016 and 2017. The vessels covered by the Five Vessel Refinancing are the Partnership-owned
Methane Alison Victoria
,
Methane Shirley
Elisabeth
and
Methane Heather Sally
and the GasLog-owned
Methane
Lydon Volney
and
Methane Becki Anne.
The
Five Vessel Refinancing is secured as follows:
-
-
first priority mortgages over the vessels owned by the respective borrowers;
-
-
guarantee from GasLog, guarantees up to the value of the commitments relating to the
Methane Alison
Victoria
,
Methane Shirley Elisabeth
and
Methane Heather Sally
from us and GasLog
Partners Holdings and a guarantee from GasLog Carriers for up to the value of the commitments on the remaining vessels;
-
-
a share charge over the share capital of the respective borrowers; and
-
-
first priority assignment of all earnings and insurance related to the vessels owned by the respective borrower.
The
Five Vessel Refinancing imposes certain operating and financial restrictions on the Partnership and GasLog. These restrictions generally limit the Partnership's and GasLog's
collective subsidiaries' ability to, among other things:
-
-
incur additional indebtedness, create liens or provide guarantees;
-
-
provide any form of credit or financial assistance to, or enter into any non-arms' length transactions with, the Partnership or any of its
affiliates;
-
-
sell or otherwise dispose of assets, including ships;
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-
-
engage in merger transactions;
-
-
enter into, terminate or amend any charter;
-
-
amend shipbuilding contracts;
-
-
change the manager of ships, or;
-
-
acquire assets, make investments or enter into any joint venture arrangements outside of the ordinary course of business.
The
GasLog and the Partnership's guarantees to the Five Vessel Refinancing impose specified financial covenants that apply to the Partnership and GasLog and its subsidiaries on a
consolidated basis.
The
financial covenants that apply to the Partnership include the following:
-
-
the aggregate amount of all unencumbered cash and cash equivalents must be not less than the higher of 3.0% of total indebtedness or
$15.0 million;
-
-
total indebtedness divided by total assets must be less than 60.0%;
-
-
the ratio of EBITDA over debt service obligations as defined in the Partnership's guarantees (including interest and debt repayments) on a
trailing 12 months' basis must be not less than 110.0%; and
-
-
the Partnership is permitted to declare or pay any dividends or distributions, subject to no event of default having occurred or occurring as a
consequence of the payment of such dividends or distributions.
The
financial covenants that apply to GasLog and its subsidiaries on a consolidated basis include the following:
-
-
net working capital (excluding the current portion of long-term debt) must be not less than $0;
-
-
total indebtedness divided by total assets must not exceed 75.0%;
-
-
the ratio of EBITDA over debt service obligations as defined in the GasLog guarantees (including interest and debt repayments) on a trailing
12 months basis must be not less than 110.0%;
-
-
the aggregate amount of all unencumbered cash and cash equivalents must be not less than the higher of 3.0% of total indebtedness and
$50.0 million after the first drawdown;
-
-
GasLog is permitted to pay dividends, provided that it holds unencumbered cash and cash equivalents equal to at least 4.0% of total
indebtedness, subject to no event of default having occurred or occurring as a consequence of the payment of such dividends; and;
-
-
GasLog's market value adjusted net worth must at all times be not less than $350.0 million;
The
Five Vessel Refinancing also imposes certain restrictions relating to the Partnership and GasLog, and their other subsidiaries, including restrictions that limit the Partnership's
and GasLog's ability to make any substantial change in the nature of the Partnership's or GasLog's business or to engage in transactions that would constitute a change of control, as defined in the
Five Vessel Refinancing, without repaying all of the Partnership's and GasLog's indebtedness under the Five Vessel Refinancing in full.
The
Five Vessel Refinancing contains customary events of default, including non-payment of principal or interest, breach of covenants or material inaccuracy of representations, default
under other material indebtedness and bankruptcy. In addition, it contains covenants requiring the Partnership,
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GasLog
and certain of their subsidiaries to maintain the aggregate of (i) the market value, on a charter exclusive basis, of the mortgaged vessel or vessels and (ii) the market value of
any additional security provided to the lenders, at not less than 120.0% of the then outstanding amount under the applicable facility and any related swap exposure. If the Partnership and GasLog fail
to comply with these covenants and are not able to obtain covenant waivers or modifications, the lenders could require prepayments or additional collateral sufficient for the compliance with such
covenants, otherwise indebtedness could be accelerated.
GasLog Seattle and Solaris Term and Revolving Facilities
Following the acquisition of GAS-seven Ltd., the entity that owns the
GasLog Seattle
, on
November 1, 2016, and of GAS-eight Ltd., the entity that owns the
Solaris
, on October 20, 2017, the Partnership assumed
$122.3 million and $116.5 million respectively of outstanding indebtedness of the acquired entities.
On
July 19, 2016, GasLog entered into a credit agreement to refinance the existing indebtedness on eight of its on-the-water vessels of up to $1,050.0 million (the "Legacy
Facility Refinancing") with a number of international banks, extending the maturities of six existing credit facilities to 2021. The vessels covered by the Legacy Facility Refinancing are the
GasLog Savannah
, the
GasLog Singapore
, the
GasLog
Skagen
, the
GasLog Seattle
, the
Solaris
, the
GasLog
Saratoga
, the
GasLog Salem
and the
GasLog Chelsea.
The
credit agreement is secured as follows:
-
-
first priority mortgages over the ships owned by the respective borrowers;
-
-
guarantee from GasLog, guarantees up to the value of the commitments relating to the
GasLog
Seattle
and
Solaris
from us and GasLog Partners Holdings and a guarantee from GasLog Carriers for up to the value of the
commitment on the remaining vessels;
-
-
a share security over the share capital of each of the respective borrowers; and
-
-
a first priority assignment of all earnings, excluding the vessels participating in The Cool Pool Limited, and insurance related to the ships
owned by the respective borrowers.
The
Legacy Facility Refinancing imposes certain operating and financial restrictions on GasLog. These restrictions generally limit GasLog's ability to, among other
things:
-
-
incur additional indebtedness, create liens or provide guarantees;
-
-
provide any form of credit or financial assistance to, or enter into any non-arms' length transactions with any of GasLog's affiliates;
-
-
sell or otherwise dispose of assets, including ships;
-
-
engage in merger transactions;
-
-
enter into, terminate or amend any charter;
-
-
amend shipbuilding contracts;
-
-
change the manager of ships, or;
-
-
acquire assets, make investments or enter into any joint venture arrangements outside of the ordinary course of business.
The
Legacy Facility Refinancing also imposes specified financial covenants that apply to GasLog and its subsidiaries on a consolidated basis.
-
-
net working capital (excluding the current portion of long-term debt) must be not less than $0;
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Table of Contents
-
-
total indebtedness divided by total assets must not exceed 75.0%;
-
-
the ratio of EBITDA over debt service obligations as defined in the Legacy Facility Refinancing (including interest and debt repayments) on a
trailing 12 months basis must be not less than 110.0%;
-
-
the aggregate amount of all unencumbered cash and cash equivalents must be not less than the higher of 3.0% of total indebtedness and
$50.0 million after the first drawdown;
-
-
GasLog is permitted to pay dividends, provided that it holds unencumbered cash and cash equivalents equal to at least 4.0% of total
indebtedness, subject to no event of default having occurred or occurring as a consequence of the payment of such dividends; and;
-
-
GasLog's market value adjusted net worth must at all times be not less than $350.0 million;
The
Legacy Facility Refinancing also imposes certain customary restrictions relating to GasLog and its subsidiaries, including restrictions that limit GasLog's ability to make any
substantial change in the nature of its business or to engage in transactions that would constitute a change of control, as defined in the Legacy Facility Refinancing, without repaying all of GasLog's
indebtedness under the Legacy Facility Refinancing in full.
The
Legacy Facility Refinancing contains customary events of default, including non-payment of principal or interest, breach of covenants or material inaccuracy of representations,
default under other material indebtedness and bankruptcy. In addition, it contains covenants requiring GasLog to maintain the aggregate of (i) the market value, on a charter exclusive basis, of
the mortgaged vessels and (ii) the market value of any additional security provided to the lenders at any time at not less than 120.0% of the then outstanding amount plus any undrawn amounts
under the applicable facilities. If GasLog fails to comply with these covenants and is not able to obtain covenant waivers or modifications, the lenders could require prepayments or additional
collateral sufficient for the compliance with such covenants, otherwise indebtedness could be accelerated.
Assumed October 2015 Facility
In connection with the acquisitions of GAS-eleven Ltd. on May 3, 2017 and GAS-thirteen Ltd. on July 3, 2017, the
Partnership assumed $151.4 million and $155.0 million of outstanding indebtedness of the respective acquired entities under a debt financing agreement dated October 16, 2015 with
14 international banks, with Citibank N.A. London Branch and Nordea Bank AB, London Branch acting as agents on behalf of the other finance parties. The financing is backed by the Export Import
Bank of Korea ("KEXIM") and the Korea Trade Insurance Corporation ("K-Sure"), who are either directly lending or providing cover for over 60% of the facility.
The
loan agreement with respect to the
GasLog Greece
provided for four tranches of $51.3 million, $25.6 million,
$25.0 million and $61.1 million, while the loan agreement with respect to the
GasLog Geneva
provided for four tranches of
$50.5 million, $25.3 million, $24.6 million and $60.3 million. Under the terms of the agreement, each drawing under the first three tranches would be repaid in
24 consecutive semi-annual equal installments commencing six months after the actual deliveries of the
GasLog Greece
and the
GasLog Geneva
according
to a 12-year profile. Each drawing under the fourth tranche would be repaid in 20 consecutive semi-annual equal installments
commencing six months after the actual deliveries of the relevant vessels according to a 20-year profile, with a balloon payment together with the final installment. On March 22, 2016,
$163.0 million was drawn down to partially finance the delivery of the
GasLog Greece
and on September 26, 2016, $160.7 million was
drawn down to partially finance the delivery of the
GasLog Geneva
. Amounts drawn under each applicable tranche bear interest at LIBOR plus a margin.
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The
obligations under the aforementioned facility are secured by a first priority mortgage over each vessel, a pledge of the share capital of the respective vessel owning companies and a
first priority assignment of earnings related to each vessel, including charter revenue, management revenue and any insurance and requisition compensation. Obligations under the facility are
guaranteed by GasLog, with the Partnership and its subsidiary GasLog Partners Holdings LLC guaranteeing up to the value of the commitments relating to the
GasLog
Greece
and the
GasLog Geneva
. The facility includes customary restrictive covenants which include a fair market value covenant
pursuant to which an event of default could occur under the facility if the aggregate fair market values of the collateral vessels (without taking into account any charter arrangements) were to fall
below 115.0% of the aggregate outstanding principal balances for the first two years after each drawdown and below 120% at any time thereafter.
GasLog,
as corporate guarantor for the aforementioned facility, is also subject to specified financial covenants on a consolidated basis. The financial covenants include the
following:
-
-
net working capital (excluding the current portion of long-term debt) must be not less than $0;
-
-
total indebtedness divided by total assets must not exceed 75.0%;
-
-
the ratio of EBITDA over debt service obligations (including interest and debt repayments) on a trailing 12 months basis must be not
less than 110.0%;
-
-
the aggregate amount of all unencumbered cash and cash equivalents must be not less than the higher of 3% of total indebtedness or
$50.0 million after the first drawdown;
-
-
GasLog is permitted to pay dividends, provided that it holds unencumbered cash and cash equivalents equal to at least 4.0% of its total
indebtedness subject to no event of default having occurred or occurring as a consequence of the payment of such dividends; and
-
-
the market value adjusted net worth of GasLog must at all times be not less than $350.0 million.
Any
failure by GasLog to comply with these financial covenants would permit the lenders under this credit facility to exercise remedies as secured creditors which, if such a default was
to occur, could include foreclosing on the
GasLog Greece
and the
GasLog Geneva
.
The
credit facility also imposes certain restrictions relating to GasLog, including restrictions that limit its ability to make any substantial change in the nature of its business or to
engage in transactions that would constitute a change of control, as defined in the relevant credit facility, without repaying all of its indebtedness in full, or to allow its largest shareholders to
reduce their shareholding in GasLog below specified thresholds.
Contracted Charter Revenues
The following table summarizes GasLog Partners' contracted charter revenues and vessel utilization as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ending December 31,
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022 - 2026
|
|
Total
|
|
|
|
(in millions of U.S. dollars, except days and percentages)
|
|
Contracted time charter revenues
(1)(2)(3)(4)
|
|
$
|
271.53
|
|
$
|
220.30
|
|
$
|
145.12
|
|
$
|
66.57
|
|
$
|
182.29
|
|
$
|
885.81
|
|
Total contracted days
(1)
|
|
|
3,824
|
|
|
3,146
|
|
|
2,007
|
|
|
851
|
|
|
2,158
|
|
|
11,986
|
|
Total available days
(5)
|
|
|
4,290
|
|
|
4,350
|
|
|
4,302
|
|
|
4,260
|
|
|
21,552
|
|
|
38,754
|
|
Total unfixed days
(6)
|
|
|
466
|
|
|
1,204
|
|
|
2,295
|
|
|
3,409
|
|
|
19,394
|
|
|
26,768
|
|
Percentage of total contracted days/total available days
|
|
|
89.14
|
%
|
|
72.32
|
%
|
|
46.65
|
%
|
|
19.98
|
%
|
|
10.01
|
%
|
|
30.93
|
%
|
-
(1)
-
Reflects
time charter revenues and contracted days for the 12 LNG carriers in our fleet.
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-
(2)
-
Our
ships are scheduled to undergo dry-docking once every five years. Revenue calculations assume 365 revenue days per ship per annum, with 30
off-hire days when the ship undergoes scheduled dry-docking.
-
(3)
-
For
time charters that include a fixed operating cost component subject to annual escalation, revenue calculations include that fixed annual
escalation. For time charters that give the charterer the option to set the charter hire rate at prevailing market rates during an initial portion of the time charter's term, revenue calculations
assume that the charterer does not elect such option. Revenue calculations for such charters include an estimate of the amount of the operating cost component and the management fee component.
-
(4)
-
Revenue
calculations assume no exercise of any option to extend the terms of charters.
-
(5)
-
Available
days represent total calendar days after deducting 30 off-hire days when the ship undergoes scheduled dry-docking.
-
(6)
-
Represents
available days for the ships after the expiration of the existing charters (assuming charterers do not exercise any option to extend the
terms of the charters).
The
table above provides information about our contracted charter revenues and ship utilization based on contracts in effect as of December 31, 2017 for the 12 LNG carriers in our
fleet. The table reflects only our contracted charter revenues, and it does not reflect the costs or expenses we will incur in fulfilling our obligations under the charters. In particular, the table
does not reflect any time charter revenues from any additional ships we may acquire in the future, nor does it reflect the options under our time charters that permit our charterers to extend the time
charter terms for successive multi-year periods at comparable charter hire rates. If exercised, the options to extend the terms of our existing charters, would result in an increase in the number of
contracted days and the contracted revenue for our fleet in the future. As already mentioned in "Item 4.Information on the Partnership, B. Business Overview,"Initial
Term, Extensions and Redelivery" and "Charter Expirations", the options to renew the charters for the
GasLog Shanghai
, the
GasLog Santiago
, the
GasLog Sydney
, the
Methane Jane
Elizabeth
and the
Methane Alison Victoria
have not been exercised. Although the contracted charter revenues are based on
contracted charter hire rate provisions, they reflect certain assumptions, including assumptions relating to future ship operating costs. We consider the assumptions to be reasonable as of the date of
this report, but if these assumptions prove to be incorrect, our actual time charter revenues could differ from those reflected in the table. Furthermore, any contract is subject to various risks,
including performance by the counterparties or an early termination of the contract pursuant to its terms. If the charterers are unable or unwilling to make charter payments to us, or if we agree to
renegotiate charter terms at the request of a charterer or if contracts are prematurely terminated for any reason, we would be exposed to prevailing market conditions at the time and our results of
operations and financial condition may be materially adversely affected. Please see "Item 3. Key InformationD. Risk Factors". For these reasons, the contracted charter
revenue information presented above is not fact and should not be relied upon as being necessarily indicative of future results and readers are cautioned not to place undue reliance on this
information. Neither the Partnership's independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the information presented in the
table, nor have they expressed any opinion or any other form of assurance on such information or its achievability and assume no responsibility for, and disclaim any association with, the information
in the table.