Teekay LNG Partners reports 3Q18 results

Highlights

• GAAP net income attributable to the partners and preferred unitholders of US$26.0 million, GAAP net income per common unit of US$0.24 and income from vessel operations of US$47.0 million in 3Q18.
• Adjusted net income attributable to the partners and preferred unitholders of US$19.5 million and adjusted net income per common unit of US$0.16 in 3Q18 (excluding items listed in Appendix A to this release).
• Generated total cash flow from vessel operations of US$132.6 million in 3Q18.
• Looking forward, net income and cash flow from vessel operations are expected to be positively impacted by increased exposure to the strong spot LNG shipping market and expected delivery of the four remaining 50% owned ARC7 LNG carriers three to five months early.
• Intend to increase quarterly cash distributions on common units by 36% in 2019 as part of a balanced capital allocation strategy.
• Intend to amend the partnership’s US tax structure to elect to be treated as a corporation, instead of a partnership, subject to common unitholder approval. If approved, common and preferred unit investors will receive Form 1099s instead of Schedule K-1s commencing in taxation year 2019.
• In early-November 2018, the partnership refinanced and upsized its existing US$190 million, 364-day revolving credit facility with a US$225 million, two-year facility.

CEO commentary

“Teekay LNG’s results for the third quarter of 2018 improved substantially, with adjusted net income up 44% compared with the second quarter of 2018,” commented Mark Kremin, President and Chief Executive Officer of Teekay Gas Group Ltd. “The earnings and cash flow from the delivery and contract start-up of our recent LNG carrier newbuildings are beginning to have a positive impact on our financial results, with eight newbuilds having now delivered since the start of 2018 and an additional seven LNG carriers, and the Bahrain regasification facility, expected to commence their fixed-rate contracts during 2019. Importantly, the vessels that have delivered to-date during 2018 only represent approximately 50% of the total US$310 million of expected incremental cash flow from vessel operations relating to our existing LNG newbuilding program and therefore, we expect our fixed-rate cash flows will continue to increase through 2019 as the remaining projects deliver.”

“We are also excited about the fundamental strength in the current spot LNG carrier market and the Partnership’s direct exposure to it. In early-September 2018, we agreed to in-charter the Magellan Spirit from the Teekay LNG Marubeni Joint Venture for two years, allowing us to take advantage of the strengthening spot LNG shipping market and I’m pleased to report that we have now fixed that ship on a five-month charter contract to the end of March 2019, which we expect will add approximately US$8 million in incremental profit to Teekay LNG over the length of this charter alone. In addition, the Torben Spirit LNG carrier and two Teekay LNG-Marubeni Joint Venture LNG carriers are scheduled to come off-charter between December 2018 and May 2019 and we are currently in discussions to secure employment for these vessels at significantly higher rates.”

Kremin continued, “As announced earlier today under a separate release, the Board is recommending that Teekay LNG elect to be treated as a corporation, instead of a partnership, for U.S. federal income tax purposes, which we believe is in the best interests of our current and future unitholders because, by eliminating the burdensome K-1 reporting, we anticipate that Teekay LNG will be a more attractive investment for larger, institutional investors. A proxy statement has been filed today and we urge all common unitholders to vote in favor of the recommendation put forward by our Board, and alongside our sponsor, Teekay Corporation, at the special meeting of common unitholders to be held on 18 December 2018.”

“Furthermore, and as discussed under a separate release, with approximately half of our newbuilding program now delivered, and virtually all of our near-term financings completed, we are today providing 2019 distribution guidance of US$0.76 per common unit on an annualised basis, representing a 36% increase from the current distribution. We believe that this distribution increase is prudent and is part of a balanced capital allocation strategy that will allow the Partnership to achieve its goals of delivering its balance sheet towards its targeted leverage of 5.5x CFVO, while also returning capital to unitholders in a sustainable manner.”

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/15112018/teekay-lng-partners-reports-3q18-results/