Capital Product Partners L.P. Announces Fourth Quarter 2009 Distribution and Financial Results.
Capital Product Partners L.P., an international owner of modern double-hull tankers, Friday released its financial results for the fourth quarter ended December 31, 2009 and declared the fourth quarter 2009 distribution of $0.41 per unit. The Partnership's net income for the quarter ended December 31, 2009 was $5.3 million, or $0.21 per limited partnership unit, which is $0.07 lower than the $0.28 per unit from the previous quarter ended September 30, 2009, and $0.15 higher than the $0.06 per unit from the fourth quarter of 2008 as adjusted by the provisions of the Application of the Two Class Method (see Note 4).
Operating surplus for the quarter ended December 31, 2009 was $10.2 million, $0.5 million lower than the $10.7 million from the third quarter of 2009 and $7.2 million lower than the $17.4 million from the fourth quarter of 2008. Operating surplus is a non-GAAP financial measure used by certain investors to measure the financial performance of the Partnership and other master limited partnerships. (Please see Appendix A for a reconciliation of this non-GAAP measure to net income.)
Revenues for the fourth quarter of 2009 were $29.4 million compared to $37.4 million in the fourth quarter of 2008. The lower revenues for the fourth quarter of 2009 are mainly due to the absence of profit share revenues, as the product tanker spot market remained at historically depressed levels.
Total operating expenses for the fourth quarter of 2009 were $16.1 million, including $8.2 million in fees for the commercial and technical management of the fleet paid to a subsidiary of Capital Maritime & Trading Corp. (â??Capital Maritimeâ?�), the Partnership's sponsor, $7.0 million in depreciation and $0.6 million in general and administrative expenses compared to $15.9 million for the fourth quarter of 2008. The increase in operating expenses is largely related to the repairs of the M/T Attikos as well as to expenses related to the remaining vessels of our fleet attributable to extraordinary items in accordance with the terms of our management agreement.
Net interest expense and finance cost for the quarter amounted to $8.0 million compared to $6.8 million for the fourth quarter of 2008. The increase in net interest expense and finance cost is primarily due to the higher interest margin applicable to our loan facilities since June 30, 2009, as well as an additional cost of $0.4 million, which is due to the increased funding costs of the banks, incurred in accordance with the terms of our loan agreements.
Overall, the tanker spot market saw signs of recovery throughout the fourth quarter of 2009. The product tanker market experienced improved activity in the Transatlantic market as a result of the seasonal recovery and the cold spell in most of the Northern hemisphere. In addition, the increased regional products trade in the East pushed spot rates higher and as a result average spot earnings for product tankers increased considerably compared to the third quarter of 2009, but remain at low levels compared to historical averages. These signs of improvement in the spot market were met with increased activity in the period market. A sustained rally in the spot market may underpin the product tanker period market in the short to medium run. However, the global oil product trade and refinery utilization remain at subdued levels and the product tanker fleet continues to grow, all important factors in determining the future trends in product tanker shipping.
The Suezmax market improved during the fourth quarter of 2009 with earnings improving to levels not seen since the beginning of 2009, as global oil supply rose on the back of increased demand in the East, delays in the Turkish Straits and large draws on OECD industry stocks due to the increased seasonal demand. The Suezmax market has sustained its upward trend into 2010 so far.
The Partnership agreed to recharter two of its tanker vessels, whose existing charters expire in the coming weeks, the M/T Axios (2007 Huyndai Mipo 47,000dwt ICE Class 1A) and the M/T Agisilaos (2006 Huyndai 37,000dwt ICE Class 1A) with subsidiaries of Capital Maritime, its Sponsor at rates higher than we could have achieved in the market at that time. The M/T Axios was fixed at $12,750 pd gross ($12,591 net) for 12 months (+/- 30 days) commencing in February 2010 and the M/T Agisilaos was fixed at $12,000 pd gross ($11,850 net) for 12 months (+/- 30 days) from its expected redelivery date of March 2010. Both charters also contain 50/50 profit share for breaking IWL and are guaranteed by Capital Maritime. Both vessels will continue under their existing charters with BP Shipping Plc until their redelivery to Capital Maritime under the new charters. The net daily charter rate under their existing charters is $20,500 for the M/T Axios and $19,750 for the M/T Agisilaos.
Mr. Lazaridis commented: ?We are pleased to announce the new charters both for Axios and Agisilaos with Capital Maritime. Our Sponsor offered better charter terms compared to other proposals as not only are the charter rates for both vessels higher than those available from other parties but our charters also contain profit sharing arrangements when the vessels trade on certain routes. In addition, the relative short duration of the charters allow us to capitalize from a potential upturn in the market in early 2011. The Partnership"s fleet charter coverage for 2010 and 2011 following the two new charter announcements stands at approximately 75% and 41%, respectively, based on available revenue days.
As of December 31, 2009, the Partnership's long-term debt remained unchanged compared to December 31, 2008 at $474.0 million and partners' capital declined to $157.1 million following the payment of $70.5 million of distributions to our unitholders during 2009. Current undrawn debt facilities amount to $246.0 million subject to the terms of our loans.
The Conflicts Committee of the Board of Directors of the Partnership conducted its annual review of the Partnership's replacement capital expenditure reserve in accordance with the partnership agreement. The Committee agreed with management that considering the substantial reduction in tanker vessel values over the last several years, effective from the fourth quarter of 2009, the annual capital expenditure reserve for the current fleet should be lowered to $9.8 million from $15.2 million.
On January 29, 2010, the Board of Directors of the Partnership declared a cash distribution for the fourth quarter of 2009 of $0.41. The fourth quarter distribution will be paid on February 17, 2010 to unit holders of record on February 8, 2010.
Mr. Lazaridis remarked: Even though 2009 was a challenging year for the tanker industry worldwide, we maintained our distribution at $1.64, we have proactively amended a number of the terms in our loan facilities and exchanged two vessels with expiring charters with vessels offering better charter rates and longer charter expiry.
The tanker industry continues to face a challenging trade environment as well as a tight credit market. The effects of these conditions can be seen in the new charter rates achieved for the M/T Axios and the M/T Agisilaos, which, although higher than recent fixtures in the market for similar vessels with similar duration, are at levels substantially lower than rates entered prior to their new charters with Capital Maritime.
The Partnership agreed that based on the challenging economic environment and specifically the much lower charter rates in the market, Â the Partnership should reduce its targeted future annual distribution level below its current distribution. In particular, the Â management noted the direct impact that the low charter rate environment will have on the Partnership as eight of our vessels are coming off charter in 2010 and an additional three vessels in 2011. As a result, the Board of Directors agreed with management"s guidance that a target annual distribution level of $0.90 per unit paid equally over four quarters is more prudent for the Partnership under current conditions. The Partnership believes that this distribution is sustainable over the medium to longer term even if the charter rate environment remains at its current depressed levels. The new annual distribution level will provide the Partnership with a number of advantages: a) greater financial flexibility and liquidity b) assist in pursuing its long-term business strategy of accretive acquisitions and c) ability to take advantage of growth opportunities. The tanker shipping market is cyclical and we would be looking at factors, such as improved oil product demand, the expected implementation of the single-hull tanker phase out, the availability of shipping finance and further delays and cancellations that are likely to reduce the number of new tanker vessel deliveries, in order to assess a potential market recovery in 2010/2011. We will monitor these factors closely and if they improve we will consider revisiting our distribution guidance.
Capital Product Partners L.P., a Marshall Islands master limited partnership, is an international owner of modern double-hull tankers. Capital Product Partners L.P. owns 18 modern vessels, comprising 15 MR tankers, two small product tankers and one Suezmax crude oil tanker. Most of our vessels are under medium to long-term charters to BP Shipping Limited, Morgan Stanley Capital Group Inc., Overseas Shipholding Group and Shell International Trading & Shipping Company Ltd.