Capital Product Partners L.P., an international owner of ocean-going vessels, released its financial results for the first quarter ended March 31, 2021.
• Operating Surplus1 and Operating Surplus after the quarterly allocation to the capital reserve for the first quarter of 2021 were $24.5 million and $14.4 million respectively.
• Announced common unit distribution of $0.10 for the first quarter of 2021.
• Repurchased 133,423 of the Partnership’s common units, at an average cost of $10.46 per unit.
• Took delivery of three 5,100 TEU container vessels with long term charter to Hapag Lloyd.
• Agreed to sell two 9,300 TEU container vessels for a total consideration of $195.0 million, which is expected to result in a capital gain of $47.8 million.
Management Commentary
Mr. Jerry Kalogiratos, Chief Executive Officer of our General Partner, commented:
“The first quarter financial performance of the Partnership reflects primarily the contribution of the increased fleet size of the Partnership, as we have managed to increase our fleet by more than 55% in terms of number of vessels since the spin-off of our tanker assets two years ago.
We have recently also taken advantage of the extraordinary container market environment and moved to sell two of our vessels at record high prices, thus securing a significant capital gain and a material increase in our available cash balances, once the sales materialize. This gives us a unique opportunity to pursue our objectives at a grander scale: first, to continue to grow our fleet with modern vessels that provide cash flow visibility, second to continue to return capital to our unitholders through distributions and unit buybacks and last but not least to set the basis for a fleet renewal program that will help reduce the Partnership’s environmental footprint, as ESG considerations and especially vessel trading emissions come to the forefront in our industry.”
Financial Summary
Overview of First Quarter 2021 Results
Net income for the quarter ended March 31, 2021 was $10.9 million, compared with net income of $6.7 million for the first quarter of 2020. After taking into account the interest attributable to the general partner, net income per common unit for the quarter ended March 31, 2021 was $0.57, compared to net income per common unit of $0.35 for the first quarter of 2020.
Total revenue was $38.1 million for the quarter ended March 31, 2021, compared to $33.7 million during the first quarter of 2020. The increase in revenue was primarily attributable to the increase in the size of our fleet following the acquisition of three 10,000 TEU containers in late January 2020 and three 5,100 TEU containers in February 2021 and the decrease in off hire days incurred during the first quarter of 2021 as none of our vessels underwent their special survey during the period compared to three vessels that incurred off hire days in connection with the installation of scrubber systems and passing of their special survey during the first quarter of 2020, partly set off by the decrease in the average daily charter rate earned by the vessels in our fleet.
Total expenses for the quarter ended March 31, 2021 were $24.2 million, compared to $22.5 million in the first quarter of 2020. Voyage expenses for the quarter ended March 31, 2021 increased to $2.2 million, compared to $1.2 million in the first quarter of 2020, as one of the vessels in our fleet was employed under voyage charters compared to none during the respective period in 2020. Total vessel operating expenses during the first quarter of 2021 amounted to $9.2 million, compared to $9.9 million during the first quarter of 2020. Operating expenses decreased during the first quarter of 2021 compared to the same period in 2020 mainly due to costs incurred during the passing of the special surveys of three of our ships in 2020 partly offset by the increase in the size of our fleet. Total expenses for the first quarter of 2021 also included vessel depreciation and amortization of $11.1 million, compared to $9.6 million in the first quarter of 2020. The increase in depreciation and amortization during the first quarter of 2021 was mainly attributable to the increase in the size of our fleet and the completion of the special surveys and the installation of scrubber systems in certain of our vessels during 2020. General and administrative expenses for the first quarter of 2021 amounted to $1.7 million as compared to $1.8 million in the first quarter of 2020.
Total other expense, net for the quarter ended March 31, 2021 was $3.1 million compared to $4.5 million for the first quarter of 2020. Total other expense, net includes interest expense and finance costs of $3.4 million for the first quarter of 2021, as compared to $4.7 million for the first quarter of 2020. The decrease in interest expense and finance costs was mainly attributable to the decrease in the LIBOR weighted average interest rate compared to the first quarter of 2020 partly offset by the increase in the average long-term debt outstanding during the period.
Capitalization of the Partnership
As of March 31, 2021, total cash amounted to $60.6 million. Total cash includes restricted cash of $8.5 million which represents the minimum liquidity requirement under our financing arrangements.
As of March 31, 2021, total partners’ capital amounted to $430.2 million, an increase of $8.1 million compared to $422.1 million as of December 31, 2020. The increase reflects net income for the three months ended March 31, 2021 and the amortization associated with the equity incentive plan, partly offset by distributions declared and paid during the period in the total amount of $1.9 million and the repurchase of Partnership’s common units for an aggregate amount of $1.4 million.
As of March 31, 2021, the Partnership’s total debt was $406.4 million, reflecting an increase of $26.7 million compared to $379.7 million as of December 31, 2020. The increase is attributable to the sale and lease back transaction entered into with CMB Financial Leasing Co., Ltd, (“CMBFL”) for an amount of $30.0 million in aggregate and the sellers’ credit agreement with Capital Maritime & Trading Corp. in the amount of $6.0 million in connection with the acquisition of three 5,100 TEU container vessels in February 2021, partially offset by scheduled principal payments during the period.
Operating Surplus
Operating surplus for the quarter ended March 31, 2021 amounted to $24.5 million, compared to $20.7 million for the previous quarter ended December 31, 2020 and $21.1 million for the first quarter of 2020. We allocated $10.1 million to the capital reserve for the first quarter of 2021, an increase of $0.8 million compared to the previous quarter due to the increased debt amortization resulting from the acquisition of the three 5,100 TEU container vessels. Operating surplus for the quarter ended March 31, 2021, after the quarterly allocation to the capital reserve was $14.4 million.
Sale of Two 9,300 TEU Container Vessels
On April 7, 2021, the Partnership entered into two separate memoranda of agreement for the sale of the M/V ‘CMA CGM Magdalena’ (115,639 dwt / 9,288 TEU, Eco-Flex, Wide Beam Containership built 2016, Daewoo-Mangalia Heavy Industries S.Α.) and the M/V ‘Adonis’ (115,639 dwt / 9,288 TEU, Eco-Flex, Wide Beam Containership built 2015, Daewoo-Mangalia Heavy Industries S.Α.) to an unaffiliated third party for a total consideration of $195.0 million. Delivery of the M/V ‘CMA CGM Magdalena’ and the M/V ‘Adonis’ to their buyer is expected in May and July/August 2021, respectively. The M/V ‘Adonis’ and the M/V ‘CMA CGM Magdalena’ were acquired in September 2015 and in February 2016, respectively, each for a purchase price of $81.5 million. The Partnership expects to record a capital gain on the sale of the vessels in an amount of $47.8 million in the third quarter of 2021. The Partnership expects gross cash proceeds from the sale after repaying outstanding debt of approximately $97.6 million.
Unit Repurchase Program
On January 25, 2021, the Partnership’s Board of Directors approved a unit repurchase program, providing the Partnership with authorization to repurchase up to $30.0 million of units of the Partnership’s common unit, effective for a period of two years. As of March 31, 2021 the Partnership repurchased 133,423 common units since the launch of the unit repurchase plan on February 19, 2021, at an average cost of $10.46 per unit.
Quarterly Common Unit Cash Distribution
On April 26, 2021, the Board of Directors of the Partnership (the “Board”) declared a cash distribution of $0.10 per common unit for the first quarter of 2021 payable on May 10, 2021 to common unit holders of record on May 3, 2021.
Market Commentary Update
The first quarter of 2021 saw further increases in container charter rates with additional positive momentum building up into the second quarter of 2021. The supply of available vessels in the charter market is very restricted at this point – especially for panamax size and larger vessels – thus, creating more upward pressure on rates, while longer charter durations are being offered by charterers in order to incentivize owners to fix. Container volume growth remains high, especially on the transpacific, where volumes were up by more than 45% during January-February 2021 compared to the same period a year ago. It is also remarkable that demand for container vessels remained strong even during the traditionally weaker period for charter rates around Chinese New Year in February 2021. Overall, the COVID-19 pandemic continues to induce increased demand for containerized goods and the associated inventory replenishment, while the accident of a 20,000 TEU container vessel during the Suez canal passage has further exacerbated the logistics chain bottleneck that has persisted over the last few quarters.
As a result, analysts expect container vessel demand to grow by 6.0% in 2021. At the same time, the strength of the container chartering market resulted in the container vessel orderbook approximately doubling within less than 12 months, standing at around 17% of current fleet TEU capacity in mid-April 2021. As of quarter end, slippage including cancellations of newbuilding container vessels stood at 18.0% in TEU compared to 25% at the end of the fourth quarter of 2020. Supply growth for 2021 is estimated at 4.3% compared to FY 2020 estimate of 2.9% and it is expected at 2.4% in 2022.
Source: Capital Product Partners L.P.
