Highlights
- Golar LNG Partners LP ("Golar Partners" or the "Partnership") reports net income attributable to unit holders of $37.8 million and operating income of $62.1 million for the second quarter of 2014 ("the second quarter")
- Generated distributable cash flow of $45.1 million for the second quarter of 2014 with a coverage ratio of 1.25
- Declared a second quarter 2014 distribution of $0.5475 per unit, representing a 4.8% increase from the previous quarter's distribution.
Financial Results Overview
Golar Partners reports net income attributable to unit holders of $37.8 million and operating income of $62.1 million for the second quarter, as compared to net income attributable to unit holders of $32.7 million and operating income of $53.8 million for the first quarter of 2014 ("the first quarter") and net income attributable to unit holders of $28.0 million and operating income of $44.4 million for the second quarter of 2013.
The improvement in operating income over the same period in 2013 is a reflection of three factors. First, the FSRU Golar Igloo, acquired on March 28, was revenue generating for all of the second quarter but did not contribute to second quarter 2013 results. Secondly, two vessels, the LNG carrier Methane Princess and FSRU Golar Winter were in drydock during the second quarter of 2013 incurring 70 days of offhire and associated positioning costs between them. No drydocks with a revenue impact to the Partnership are planned for 2014. Thirdly, during the intervening period, there was an increase in the charter rate for Golar Winter to compensate for modification works that were undertaken in conjunction with the drydock. The improved results are partially offset by increased depreciation and amortization as a consequence of the acquisition of the Golar Igloo and the additional investment in the Golar Winter modifications and higher drydock amortisation following the heavy drydocking program undertaken by the Partnership over the same period last year.
A full quarter's contribution from the Igloo versus 4 days in the first quarter together with an additional calendar day in the second quarter accounts for the $13.6 million increase in revenue net of voyage expenses from $86.5 million in the first quarter to $100.1 million in the second quarter. Operating expenses increased by $3.1 million. Of this, $1.4 million was incremental additional cost in connection with the Igloo, $0.8 million relates to the provision for settlement of a pre-acquisition claim and has a corresponding receivable from Golar LNG Limited ("Golar") in the balance sheet and the remaining $0.9 million covers general operating cost categories across the fleet. Administration expenses were however marginally lower in the second quarter by $0.1 million.
As anticipated, net interest expense increased to $11.0 million for the second quarter of 2014 compared to $9.6 million for the first quarter. The increase primarily reflects a full quarter's interest on the $161 million debt and $100 million swap assumed upon acquisition of the Igloo, partly offset by savings in respect of two relatively high cost interest rate swaps that matured during the quarter. As at June 30, the Partnership has undrawn facilities of $60 million.
Other financial items for the second quarter recorded a loss of $8.0 million compared with a loss of $6.2 million in the first quarter. This included non-cash mark-to-market valuation losses on interest rate swaps of $3.3 million in the second quarter compared to $1.8 million in the first quarter.
Tax at $2.6 million for the second quarter is $0.2 million less than the first quarter notwithstanding additional charges in respect of the Igloo FSRU operating in Kuwait. This reduction principally relates to a credit to tax expense resulting from a year-to-date reassessment of current tax estimates.
The Partnership's Distributable Cash Flow1 for the second quarter was $45.1 million as compared to $36.1 million in the first quarter and the coverage ratio was 1.25 as compared to 1.06 for the first quarter. The lower first quarter coverage ratio reflects distributions paid on the additional units issued ahead of the Igloo acquisition. Had distributions paid on these new units been excluded, the coverage ratio in the first quarter would have been 1.16.
On July 17, 2014, Golar Partners declared a distribution for the second quarter of 2014 of $0.5475 per unit, which was paid on August 12, 2014 on total units of 62,870,335.
Financing and Liquidity
As of June 30, 2014, the Partnership had cash and cash equivalents of $48.5 million and undrawn revolving credit facilities of $60 million. Total debt and capital lease obligations net of restricted cash was $1,094.4 million as of June 30, 2014.
Based on the above debt amount and annualized2 second quarter 2014 adjusted EBITDA3,Golar Partners has a strong balance sheet with a debt to adjusted EBITDA multiple of 3.3 times.
Included within the current portion of long term debt is an $82.0 million debt facility in respect of the Golar Maria that matures in December 2014. The Partnership plans to refinance this facility ahead of its expiration and is in discussions with a number of banks with a view to financing the Golar Maria debt as well as refinancing some of the Partnership's other debt. The Board is confident that the facility can be refinanced on attractive terms.
1Distributable cash flow is a non-GAAP financial measure used by investors to measure the performance of master limited partnerships. Please see Appendix A for a reconciliation to the most directly comparable GAAP financial measure.
2Annualized means the figure for the quarter multiplied by 4.
3Adjusted EBITDA: Earnings before interest, other financial items, taxes, non-controlling interest, depreciation and amortization. Adjusted EBITDA is a non-GAAP financial measure used by investors to measure our performance. Please see Appendix A for a reconciliation to the most directly comparable GAAP financial measure.
As of June 30, 2014, Golar Partners had interest rate swaps with a notional outstanding value of approximately $1,073.4 million (including swaps with a notional value of $227.2 million in connection with the Partnership's bonds but excluding $100 million of forward starting swaps) representing approximately 98.1% of total debt and capital lease obligations, net of restricted cash. The average fixed interest rate of swaps related to bank debt is approximately 2.0% with average maturity of approximately 3.6 years as of June 30, 2014.
As of June 30, 2014, the Partnership had outstanding bank debt of $873.3 million with average margins, in addition to LIBOR or fixed swap rates, of approximately 2.3%. In addition, the Partnership has bonds of $212.1 million with a fixed rate of 6.485%.
Outlook
As reported last quarter, the Partnership completed the acquisition of the Golar Igloo in March 2014 which adds a five year contract with Kuwait National Petroleum Company to the revenue backlog, and as a result has increased distributions by 4.8% to $0.5475 per quarter.
The Partnership's next identified potential acquisition is the FSRU Golar Eskimo, which has been chartered to the Government of Jordan on a 10 year contract. The vessel will be moored at a purpose built structure that is to be constructed by the Aqaba Development Corporation off the Red Sea port of Aqaba. The Golar Eskimo is expected to commence its contract in the first half of 2015.
Golar Partners fleet performed well during the quarter with 99.6% utilization underlying a strong operating earnings result and distributable cash flow coverage of 1.25x. The Partnership is also in a strong financial position with a net debt to EBITDA ratio of 3.3, which enables it to increase debt levels somewhat to fund future acquisitions.
As at the end of the second quarter, Golar Partners has a total order backlog of $2.4 billion with an average remaining contract length of 6.0 years. This order backlog significantly reduces financial risk for the Partnership and eliminates any exposure to the current weak LNG shipping market.
Golar Partners next acquisition is likely to be the Golar Eskimo and the Partnership is confident about further FSRU as well as LNG carrier acquisition opportunities from Golar over the next 24 months. Looking further forward, the Board is excited about the potential acquisition of floating liquefaction assets from Golar, which will likely be high margin and long contract duration assets. This growth potential underpins the Board's confidence in the Partnership's ability to continue to increase its earnings and distributions over time.
Even if growth in distributions for 2014 and 2015 is likely to be under 10 percent, the Board is confident that a realistic long term target for growth in distributions, supported by the investments in FLNG, should be above 10 percent.
August 26, 2014
Golar LNG Partners L.P.
Hamilton, Bermuda.
