HAlegh LNG Partners LP Reports Financial Results for the Quarter Ended June 30, 2016

HAlegh LNG Partners LP today reported its financial results for the quarter ended June 30, 2016.

Highlights

-Reported total time charter revenues of $22.8 million for the second quarter of 2016 compared to $11.1 million of time charter revenues for the second quarter of 2015

-Generated operating income of $11.3 million and net income of $4.1 million for the second quarter of 2016 compared to operating income of $18.7 million and net income of $16.4 million for the second quarter of 2015; operating income and net income were impacted by unrealized losses on derivative instruments on the Partnership’s share of equity in losses of joint ventures in the second quarter of 2016 compared with unrealized gains for the second quarter of 2015

-Excluding the impact of the unrealized losses on derivatives for the three months ended June 30, 2016 and 2015 affecting the equity in earnings of joint ventures, operating income for the three months ended June 30, 2016 would have been $15.5 million, an increase of $6.6 million or approximately 74% from $8.9 million for the three months ended June 30, 2015

-Generated Adjusted EBITDA1 of $25.2 million for the second quarter of 2016 compared to $16.0 million for the second quarter of 2015

-On August 15, 2016, paid a $0.4125 per unit distribution with respect to the second quarter of 2016, equivalent to $1.65 per unit on an annual basis

Richard Tyrrell, Chief Executive Officer and Chief Financial Officer stated: “During the second quarter, HAlegh LNG Partners generated strong cash flows that were consistent with expectations after factoring in contractual protections in the form of indemnities and warranties that offset the cost of previously disclosed maintenance to the HAlegh Gallant. Our FSRUs continued to perform according to their multi-year contracts, generating stable fixed-fee revenues. HAlegh LNG Partners declared a cash distribution of $0.4125 per unit for the second quarter of 2016, which is unchanged from the previous quarter and represents a 22% increase since the initial public offering. We expect to have the opportunity to acquire the HAlegh Grace once it goes on contract later this year and to be in a position to increase the distribution further. As LNG production and liquefaction continue to expand at a rapid pace, we are confident that our FSRUs will remain the preferred method of connecting new markets to global LNG trade. Our dropdown pipeline of state-of-the-art, purpose-built FSRUs, combined with HAlegh’s leadership in the sector, position us well to continue benefitting from these long-term trends.”

Financial Results Overview

The Partnership reported net income for the three months ended June 30, 2016 of $4.1 million, a decrease of $12.4 million from net income of $16.4 million for the three months ended June 30, 2015. The net income for both periods was impacted by unrealized gains (losses) on derivative instruments mainly on the Partnership’s share of equity in earnings (losses) of joint ventures.

Excluding all the unrealized gains (losses) on derivative instruments, net income for the three months ended June 30, 2016 would have been $7.9 million, an increase of $1.3 million or 19.7% from $6.6 million for the three months ended June 30, 2015. Excluding the unrealized gains (losses) on derivative instruments, the increase is primarily due to the inclusion of the results of the HAlegh Gallant which is partially offset by the reduction of the interest income on the $140 million demand note cancelled as part of the acquisition price.

The PGN FSRU Lampung was on-hire for the entire second quarter of 2016. The HAlegh Gallant was on reduced hire for the equivalent of approximately two days of off-hire in second quarter of 2016. Due to an issue identified in the scheduled maintenance inspections in the first quarter of 2016, additional maintenance for the HAlegh Gallant occurred in the second quarter of 2016.

Equity in losses of joint ventures was $1.9 million for the three months ended June 30, 2016, a decrease of $13.3 million from equity in earnings of $11.5 million for the three months ended June 30, 2015. The joint ventures own the GDF Suez Neptune and the GDF Suez Cape Ann. The reason for the loss was an unrealized loss of $4.2 million on derivative instruments in our joint ventures for the three months ended June 30, 2016. By comparison, the equity in earnings for the three months ended June 30, 2015 was significantly impacted by an unrealized gain of $9.9 million on derivative instruments. The joint ventures do not apply hedge accounting for interest rate swaps and all changes in fair value are included in equity in earnings (losses) of joint ventures. For the three months ended June 30, 2016, the Partnership’s share of operating income in the joint ventures was $6.1 million compared to $5.7 million for the three months ended June 30, 2015.

1Adjusted EBITDA is a non-GAAP financial measure used by investors to measure financial and operating performance. Please see Appendix A for a reconciliation of Adjusted EBITDA and Segment EBITDA to net income, the most directly comparable GAAP financial measure.

Operating income for the three months ended June 30, 2016 was $11.3 million, a decrease of $7.4 million from operating income of $18.7 million for the three months ended June 30, 2015. Excluding the impact of the unrealized gains (losses) on derivative instruments for the three months ended June 30, 2016 and 2015 on the equity in earnings (losses) of joint ventures, operating income for the three months ended June 30, 2016 would have been $15.5 million, an increase of $6.6 million from $8.9 million for the three months ended June 30, 2015. The increase for the three months ended June 30, 2016 is primarily due to the inclusion of the results of the HAlegh Gallant which was acquired on October 1, 2015. Operating income for the three months ended June 30, 2016 was impacted by a warranty provision of $0.3 million recorded as construction contract expenses, reduced revenues and higher vessel operating expenses from incurring liquidated damages and additional consumables related to for the maintenance of the HAlegh Gallant.

Adjusted EBITDA2 was $25.2 million for the three months ended June 30, 2016, an increase of $9.2 million from $16.0 million for the three months ended June 30, 2015.

Financing and Liquidity

As of June 30, 2016, the Partnership had cash and cash equivalents of $18.0 million and an undrawn sponsor credit facility of $85 million. Current restricted cash for operating obligations of the PGN FSRU Lampung was $9.9 million and long-term restricted cash required under the Lampung facility was $14.4 million as of June 30, 2016. In addition, the Partnership had long-term restricted cash of $0.2 million related to cash balances required for tax guarantees related to the HAlegh Gallant as of June 30, 2016. The Partnership has reduced its exposure in Egyptian pounds which are not readily exchangeable into other currencies by repaying approximately $0.5 million of amounts due to owners and affiliates in Egyptian pounds as of June 30, 2016. As of June 30, 2016, the Partnership’s total current liabilities exceeded total current assets by $16.6 million which is partly a result of mark-to market valuations of its interest rate swaps (derivative instruments) of $5.0 million. The Partnership does not plan to terminate the interest rate swaps before their maturity and, as a result, the Partnership believes its current resources, including the sponsor credit facility, are sufficient to meet the Partnership’s working capital requirements for its current business for the next twelve months.

During the second quarter of 2016, the Partnership made quarterly repayments of $4.8 million on the Lampung facility and $3.3 million on the Gallant facility. The Partnership’s outstanding principal on long-term debt was $357.2 million and the total long-term debt, net of unamortized debt issuance cost and the unamortized fair value of debt assumed, was $347.8 million as of June 30, 2016.

As of June 30, 2016, the Partnership had outstanding interest rate swap agreements for a total notional amount of $322.7 million to hedge against the interest rate risks of its long-term debt under the Lampung and Gallant facilities. The Partnership applies hedge accounting for derivative instruments related to those facilities. The Partnership receives interest based on three month US dollar LIBOR and pays a fixed rate of 2.8% for the Lampung facility. The Partnership receives interest based on three month US dollar LIBOR and pays a fixed rate of approximately 1.9% for the Gallant facility. The carrying value of the liability for derivative instruments was $18.5 million as of June 30, 2016. The effective portion of the changes in fair value of the interest rate swaps are recorded in other comprehensive income. The gain on the derivative instruments for the three months ended June 30, 2016 was $0.3 million, an increase of $0.3 million compared to the three months ended June 30, 2015. The gain on derivative instruments for the three months ended June 30, 2016 related to the interest rate swaps for the Lampung and Gallant facilities, while the loss for the three months ended June 30, 2015 related to the Lampung facility. The increase is mainly due to higher amortization of the amount excluded from hedge effectiveness related to interest rate swaps for the Gallant facility.

During August 2016, the Partnership drew $5.4 million on the $85 million sponsor credit facility.

On August 15, 2016, the Partnership paid a cash distribution of $0.4125 per unit with respect to the second quarter of 2016, equivalent to $1.65 per unit on an annualized basis. The total amount of the distribution was $11.0 million.

In the third quarter of 2016, the Partnership filed and was paid $1.8 million of claims for indemnification from HAlegh LNG for the three months ended June 30, 2016 under the omnibus agreement related to the PGN FSRU Lampung and the contribution, purchase and sale agreement for the acquisition of the HAlegh Gallant. The claims were with respect to $0.8 million of non-budgeted expenses (including an additional warranty provision, withholding tax and penalties for the late withholding tax filing) for the PGN FSRU Lampung and losses of $0.9 million with respect to the commencement of services under the time charter with Hoegh LNG Egypt LLC due to start up technical issues and $0.1 million with respect to other costs incurred for the HAlegh Gallant.

2 Adjusted EBITDA is a non-GAAP financial measure used by investors to measure financial and operating performance. Please see Appendix A for a reconciliation of Adjusted EBITDA and Segment EBITDA to net income, the most directly comparable GAAP financial measure.

Outlook

Due to an issue identified in scheduled maintenance inspections for the HAlegh Gallant during first quarter of 2016, further maintenance is expected to result in several days of reduced hire for the HAlegh Gallant in the third quarter of 2016.

Pursuant to the omnibus agreement that the Partnership entered into with HAlegh LNG at the time of the IPO (i) HAlegh LNG is obligated to offer to the Partnership any FSRU or LNG carrier operating under a charter of five or more years and (ii) the Partnership has a right to purchase from HAlegh LNG all or a portion of its interests in the Independence within 24 months after the acceptance of the vessel by her charterer, AB Klaipedos Nafta (“ABKN”) subject to reaching an agreement with HAlegh LNG regarding the purchase price and other terms of the transaction and subject to the consent of ABKN.

Accordingly, the Partnership has, or may in the future have, the opportunity to acquire the FSRUs listed below:

-On May 26, 2015, HAlegh LNG signed a contract for a term of twenty years with Octopus LNG SpA (“Octopus”) to provide an FSRU to service the Penco-Lirquen LNG import terminal to be located in Concepcion Bay, Chile. The contract is subject to Octopus completing financing and obtaining necessary environmental approvals. HAlegh LNG is expected to service the contract with Hull No. 2865 which is currently being constructed by Hyundai Heavy Industries Co., Ltd. (“HHI”). The contract is expected to commence in the second quarter of 2018.

-On November 1, 2014, HAlegh LNG signed a contract for a minimum term of ten years with Sociedad Portaria El Cayao S.A.E.S.P (“SPEC”) to provide an FSRU (the HAlegh Grace) to service a new LNG import terminal in Columbia. The HAlegh Grace was delivered by the shipyard in the first quarter of 2016, and its contract is expected to commence in the fourth quarter of 2016.

-On December 5, 2014, the Independence began operating under its time charter with ABKN. The Partnership and HAlegh LNG continue to pursue, but have not received, ABKN’s consent to the acquisition of the Independence by the Partnership.

In addition to the FSRU under construction for Octopus, HAlegh LNG has one additional FSRU (Hull No. 2552) on order which is scheduled to be delivered in mid-2017. The newbuilding has not yet been contracted.

There can be no assurance that the Partnership will acquire any vessels from HAlegh LNG or of the terms upon which any such acquisition may be made.

Source: HAlegh LNG Partners LP