Highlights
- Golar LNG Partners LP ("Golar Partners" or the "Partnership") reports 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")
- Generated distributable cash flow of $36.1 million for the first quarter of 2014 with a coverage ratio of 1.06
- Declared a first quarter 2014 distribution of $0.5225 per unit
- Completed the acquisition of the Floating Storage and Regas Unit ("FSRU"), Golar Igloo, from Golar LNG Limited ("Golar") for $310 million
Financial Results Overview
Golar Partners reports net income attributable to unit holders of $32.7 million and operating income of $53.8 million for the first quarter, as compared to net income attributable to unit holders of $47.6 million and operating income of $54.7 million for the fourth quarter of 2013 ("the fourth quarter") and net income attributable to unit holders of $30.3 million and operating income of $45.2 million for the first quarter of 2013.
The improvement in operating income over the same period in 2013 is a reflection of three factors. First, the Golar Spirit commenced 2013 in drydock and this resulted in approximately 57 days of offhire and associated positioning costs during that quarter. Secondly, during the intervening period, there was a biennial uplift to the capital component of the Golar Spirit and Golar Winter and a further increase in the charter rate for Golar Winter also took effect to compensate for the completion of the modification works. Thirdly, the Partnership completed the acquisition of the Golar Maria on February 7, 2013 and in so doing assumed the operating income of this vessel for the remainder of the quarter. First quarter 2014 operating income incorporates a full quarter's contribution from the Golar Maria. The improved results are partially offset by increased depreciation and amortization as a consequence of the acquisition of the Golar Maria, the additional investment in Golar Winter modifications and four vessel drydocks over the intervening 12 months.
Taking account of the reduced number of calendar days in the first quarter and four day revenue contribution from the recently acquired Golar Igloo, revenue net of voyage expenses was consistent with the fourth quarter. Operating expenses increased by $1 million largely due to an increase in repairs and maintenance expenditure. Administration expenses were, however, marginally lower in the first quarter by $0.1 million.
As anticipated, net interest expense decreased to $9.6 million for the first quarter of 2014 compared to $10.5 million for the fourth quarter. The reduction primarily reflects the expiry of a relatively high cost interest rate swap that matured during November together with reduced interest expense in respect of two revolving facilities that were paid down at the end of 2013 using $70 million of the December 5th 2013 equity issue proceeds. Shortly before completion of the Igloo acquisition on March 28, these revolving facilities were redrawn to part fund the purchase. As at March 31, the Partnership has undrawn facilities of $65 million.
Other financial items for the first quarter recorded a loss of $6.2 million compared with a gain of $1.5 million in the fourth quarter. This included non-cash mark-to-market valuation losses on interest rate swaps of $1.8 million in the first quarter compared to gains on interest rate swaps of $6.0 million in the fourth quarter.
Tax at $2.8 million for the first quarter has normalized after recording a credit of $4.3 million in respect of the fourth quarter following a year-end reassessment of 2013 tax expense.
The Partnership's Distributable Cash Flow1 for the first quarter was $36.1 million as compared to $44.8 million in the fourth quarter and the coverage ratio was 1.06 as compared to 1.32 for the fourth quarter. The elevated fourth quarter coverage is primarily a result of the 2013 tax credit. This was offset to some extent by the negative carry on the additional 5.2 million units issued on December 5th. The lower first quarter coverage ratio also reflects distributions paid on the additional units issued ahead of the Igloo acquisition. If distributions paid on these new units are excluded, the coverage ratio in the first quarter would have been 1.16. Declared distributions are payable on all units as at the record date.
On April 24, 2014, Golar Partners declared a distribution for the first quarter of 2014 of $0.5225 per unit, which was paid on May 14, 2014 on total units of 62,870,335.
Golar Igloo Acquisition
In December 2013, the Partnership announced its intention to acquire interests in the company that owns and operates the FSRU, Golar Igloo ("Igloo") from Golar for a purchase price of $310 million. The Igloo, which is the Partnership's first newbuild FSRU, was delivered by Samsung on February 5 and immediately proceeded to Singapore for bunkering and storing up before leaving for Kuwait on February 14. The FSRU arrived off Kuwait and was successfully commissioned for her new charterers, the Kuwait National Petroleum Company ("KNPC"), during March. Upon completion of the commissioning and satisfaction of the remaining closing conditions, Golar Partners concluded the acquisition on March 28. The FSRU is expected to generate annual contracted revenues, after deducting voyage, commission and operating expenses of between $32.0 million to $34.0 million. This estimate does not include any revenues that the Igloo may earn under short-term charters for the three-month period each year during which the Igloo is not providing FSRU services to KNPC under charter. The Board is pleased that Golar was able to successfully arrange the commissioning cargo for the Igloo and the Partnership hopes to be able to assist KNPC with the transportation of future cargo acquisitions ahead of each March regas season.
The Partnership financed the acquisition of the Igloo by assuming debt on the vessel amounting to $161.3 million and the remainder from the net proceeds of its fourth follow-on equity offering that completed in December 2013.
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.
Financing and Liquidity
As of March 31, 2014, the Partnership had cash and cash equivalents of $48.9 million and undrawn revolving credit facilities of $65 million. Total debt and capital lease obligations net of restricted cash was $1,113.5 million as of March 31, 2014.
Based on the above debt amount and annualized2 first quarter 2014 adjusted EBITDA3, Golar Partners has a debt to adjusted EBITDA multiple of 3.9 times. This multiple is expected to fall in the second quarter having been adversely impacted in the first quarter by the assumption of the Igloo related debt without a corresponding full quarter's contribution to EBITDA.
Included within the current portion of long term debt is an $83.3 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 achieving the most effective capital structure. The Board is confident that the facility can be refinanced at attractive terms.
As of March 31, 2014, Golar Partners had interest rate swaps with a notional outstanding value of approximately $1,211 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 109% of total debt and capital lease obligations, net of restricted cash. Whilst the Partnership is currently over-hedged, this will normalize in the second quarter when $130 million swaps mature between April and May 2014. The average fixed interest rate of swaps related to bank debt is approximately 2.3% with average maturity of approximately 2.8 years as of March 31, 2014.
As of March 31, 2014, the Partnership had outstanding bank debt of $887.5 million with average margins, in addition to LIBOR or fixed swap rates, of approximately 2.3%. In addition, the Partnership has bonds of $217.1 million with a fixed rate of 6.485%.
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.
Outlook
The Partnership is pleased to have completed the acquisition of the Golar Igloo in March 2014 which also adds a five year contract with KNPC to the revenue backlog which in total now stands at $2.5 billion as at March 31, 2014. As a result of the acquisition management have guided that they will recommend to the Board a distribution increase of between $0.09 and $0.11 per unit per annum, approximately a 4.5% increase, with effect from the second quarter of 2014.
During 2013, Golar LNG also contracted the FSRU, Golar Eskimo, to the Government of Jordan. 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 scheduled to be ready for service in the latter part of the fourth quarter 2014 and its ten year contract is due to commence during the first quarter of 2015. This vessel will also be offered to the Partnership to acquire.
Golar Partners fleet has performed well during the quarter with 100% utilization underlying a strong operating earnings result. Without the impact of the 5.2 million units issued to finance the Igloo the coverage ratio would have been 1.16 as compared to the actual ratio of 1.06. Earnings for the second quarter of 2014 are expected to be positively impacted by a full quarter's contribution from the Igloo as compared to just 4 days in the first quarter.
The Partnership is also in a strong financial position. Adjusting for the Igloo debt assumed at the end of the first quarter and the Igloo's 4 days of earnings, the net debt to EBITDA ratio would have been 3.4.
With solid operating performance, good coverage and a strong financial position, Golar Partners is well positioned to make further acquisitions even without raising additional equity. These include the likely Golar Eskimo acquisition as well as further Golar LNG carriers, FSRUs and potentially long-term contracted floating liquefaction assets. This growth potential underpins the Board's confidence in the Partnership's ability to continue to increase its earnings and distributions over time.
May 28, 2014
Golar LNG Partners L.P.
Hamilton, Bermuda.
Questions should be directed to:
C/o Golar Management Ltd - +44 207 063 7900
Brian Tienzo or Graham Robjohns
