Capital Product Partners L.P. (Nasdaq: CPLP) is an international, diversified shipping company and leader in the seaborne transportation of a wide range of cargoes, including crude oil, refined oil products, such as gasoline, diesel, fuel oil, jet fuel and edible oils, as well as dry cargo and containerized goods. As a publicly traded master limited partnership, CPLP has elected to be treated as a C-Corp. for tax purposes which is most beneficial for U.S. investors (as they receive the standard 1099 form). The Partnership is well-positioned to benefit from the long-term growth dynamics of the global shipping industry and to capitalize on potential acquisition opportunities in the fragmented shipping market. CPLP benefits from the commercial and technical management agreement with Capital Ship Management Corp. (‘CSM’), an established and reputable diversified shipping company.
• The Partnership’s common unit distribution for the third quarter of 2018 was $0.08 per common unit.
• The common unit distribution coverage for the three month period ended September 30, 2018 was 1.1x after accounting for Class B distributions and the capital reserve.
• Strong balance sheet with net debt to capitalization ratio at 31.0% as at the end of the third quarter of 2018.
• Long-term distributable cash flow growth is enhanced by the Partnership’s commitment to an accretive growth strategy as it builds on its financial flexibility. The Partnership has the option to grow its fleet further with four modern eco MR (Medium Range) product tankers from its Sponsor, on which CPLP has a right of first refusal, as well as other tanker and container tonnage.
Modern High Specification Fleet
• The CPLP fleet currently consists of thirty six high specification vessels: three Suezmax crude oil tankers, one Aframax crude oil tanker, twenty-one modern MR product tankers, all of which are classed as IMO II/III vessels, ten Neo Panamax container carrier vessels and one Capesize bulk carrier.
• The average age of the CPLP fleet (weighted by dwt) is 8.3 years (as of October 31, 2018). Its thirteen Ice Class 1A MR chemical/product tankers represent one of the largest such fleets in the world.
• CPLP vessels have been designed and equipped to the highest specification and are compliant with current regulatory requirements.
• The International Maritime Organization (IMO) new regulations, effective January 1, 2020, will limit the sulfur in fuel used by ships to 0.5% from 3.5%. In consideration of this new regulation, the Partnership announced a plan to equip part of its fleet with exhaust gas cleaning systems (“EGCS”), also known as scrubbers, on up to 14 of its larger vessels, comprising ten containerships, three crude tankers and one bulk carrier. The final decision to install the scrubbers will depend on the charter profile and type of vessel. The installation of the scrubbers is expected to be completed throughout 2019 and 2020.
Fleet Employment -- Visible & Stable Cash Flows
• CPLP vessels are chartered under medium- to long-term, fixed-rate time and bareboat charters with reputable counterparties worldwide including oil majors, traders, operators and liner companies. Over the years, CPLP vessels have secured long term employment among others with Andeavor, BP Shipping, Cargill, Petrobras, Repsol, Shell, Total, CMA-CGM, HMM, Maersk Lines, MSC and COSCO.
• CPLP vessel charters have an average revenue weighted remaining term of 4.7 years (as of September 30, 2018), with staggered expirations. The Partnership’s charter coverage for the remainder of 2018 stands at 78% and for 2019 is at 63% (as of September 30, 2018).
Strong Sponsor Qualified for Long-Term Charter Business with Oil Majors
• CPLP’s sponsor, Capital Maritime & Trading Corp. (“Capital Maritime”), is a large, financially strong and diversified shipping company with a long, successful track record.
• Capital Maritime owns a 13.8% stake in the Partnership on a fully converted basis (as of September 30, 2018).
• Capital Maritime has an extensive network of relationships with oil majors, traders, liners and other major charterers.
• CPLP has entered into management agreements with Capital Ship Management Corp. that provides commercial and technical management for all of its vessels.
• CSM manages the CPLP fleet and has passed rigorous operational, safety and environmental audits. CSM is one of a handful of shipping companies qualified to enter into long-term charters with oil majors. Its numerous accreditations and accolades include the: “Green Environmental Achievement Award” 2014 by the Port of Long Beach in Southern California; QualShip 21 awards in 2014 & 2015, repeated Amver Awards and the Amver ‘Special Rescue Award’ 2014 by the U.S. Coast Guard; “Tanker Company of the Year 2009” Lloyd’s List Greek Shipping Award.
• CSM has a Safety Management System in compliance with the IMO’s ISM code, the Quality Assurance Standard ISO 9001, the Environmental Management Standard ISO 14001, the Occupational Health & Safety Management System (“OHSAS”) 18001 and the Energy Management System ISO 50001. All certified by the Lloyd’s Register of Shipping.
• CSM was the first company worldwide in 2014 to receive independent verification and certification by Lloyds Register of Shipping for its business strategy in accordance with the “IMO Strategic Concept of a Sustainable Shipping Industry”. CSM has established a task force to implement specific actions addressing Sustainability.
Growth Strategy & Financial Strength
• CPLP maintains a strong balance sheet and capital structure with net debt/capitalization of 31.0% and Partners’ capital representing 62.6% of the balance sheet (as of September 30, 2018).
• In October 2017, CPLP successfully completed the refinancing of substantially all of its indebtedness by concluding a new $460 million credit facility (the “2017 credit facility”) and the prepayment of $116.2 million in cash. The refinancing allowed CPLP to address all of its near term bullet payments and gives its unitholders enhanced visibility on the Partnership’s financial position, as the 2017 credit facility only matures in the fourth quarter of 2023. As of September 30, 2018, CPLP’s total debt amounted to $465.1 million in total.
• Quarterly capital reserve in place intended to address our principal amortization requirements. For the third quarter of 2018, we allocated $13.6 million to the capital reserve, an increase of $0.4 million compared to the previous quarter. The capital reserve has been increased to better reflect the total amortization payments across all our credit facilities over the next five years.
• Year to date we have acquired the M/T ‘Aristaios’, an eco-type Aframax crude tanker, and the eco-type MR product tanker ‘Anikitos’ from our Sponsor, Capital Maritime. We have the option to grow our fleet further with four additional newbuild eco MR product tankers from our Sponsor, on which CPLP has a right of first refusal, as well as other assets from our Sponsor and the second hand market.
• Depending on our access to the financial markets, our objective is to pursue additional accretive transactions going forward and expand our asset base, with a view to further increasing the long-term distributable cash flow of the Partnership.
For more information on Capital Product Partners L.P. please see our Annual Report 2017.
Last updated October 31, 2018