Capital Product Partners L.P., an international owner of ocean-going vessels, today released its financial results for the third quarter ended September 30, 2023.
Overview of Third Quarter 2023 Results
Net income for the quarter ended September 30, 2023, was $17.0 million, compared with net income of $58.7 million for the third quarter of 2022. Net income for the third quarter of 2022 included a gain of $47.3 million from the sale of the M/V Archimidis and the M/V Agamemnon. Taking into account the interest attributable to the general partner and the allocation of net income to unvested units, net income per common unit for the quarter ended September 30, 2023, was $0.84, compared to net income per common unit of $2.90 for the third quarter of 2022, or $0.57 per common unit for the third quarter of 2022, if we exclude the gain from the sale of the M/V Archimidis and the M/V Agamemnon in that quarter.
Total revenue for the quarter ended September 30, 2023, was $95.5 million, compared to $71.9 million during the third quarter of 2022. The increase in revenue was primarily attributable to the revenue contributed by the four newbuilding vessels delivered to the Partnership between the fourth quarter of 2022 and the second quarter of 2023, as well as the increase in the daily rate earned by two of the Partnership’s LNG/C vessels effective since September 1, 2022.
Total expenses for the quarter ended September 30, 2023, were $51.0 million, compared to $40.4 million in the third quarter of 2022. Total vessel operating expenses during the third quarter of 2023 amounted to $22.3 million, compared to $17.0 million during the third quarter of 2022. The increase in vessel operating expenses was mainly due to the net increase in the average number of vessels in our fleet and costs incurred during scheduled maintenance underwent by certain of our vessels. Total expenses for the third quarter of 2023 also include vessel depreciation and amortization of $21.9 million, compared to $16.2 million in the third quarter of 2022. The increase in depreciation and amortization during the third quarter of 2023 was mainly attributable to the net increase in the average size of our fleet. General and administrative expenses for the third quarter of 2023 amounted to $2.6 million, compared to $2.8 million in the third quarter of 2022.
Total other expense, net for the quarter ended September 30, 2023, was $27.5 million compared to $20.0 million for the third quarter of 2022. Total other expense, net includes interest expense and finance costs of $27.8 million for the third quarter of 2023, compared to $14.9 million for the third quarter of 2022. The increase in interest expense and finance costs was mainly attributable to the increase in the Partnership’s average indebtedness and the increase in the weighted average interest rate compared to the third quarter of 2022.
Capitalization of the Partnership
As of September 30, 2023, total cash amounted to $108.5 million. Total cash includes restricted cash of $11.7 million, which represents the minimum liquidity requirement under our financing arrangements.
As of September 30, 2023, total partners’ capital amounted to $664.5 million, an increase of $26.1 million compared to $638.4 million as of December 31, 2022. The increase reflects net income for the nine months ended September 30, 2023, other comprehensive income of $2.1 million relating to the net effect of the cross-currency swap agreement we designated as an accounting hedge and the amortization associated with the equity incentive plan of $2.8 million, partly offset by distributions declared and paid during the period in a total amount of $9.2 million and the cost of repurchasing our common units under our Unit Repurchase Program for an aggregate amount of $4.1 million.
As of September 30, 2023, the Partnership’s total debt was $1,602.4 million before financing fees, reflecting an increase of $303.1 million compared to $1,299.2 million as of December 31, 2022. The increase is attributable to the drawdowns of: a) $100.0 million under a new credit facility to partly finance the acquisition of the M/V Buenaventura Express in June 2023, b) $184.0 million under a sale and leaseback transaction to partly finance the acquisition of the LNG/C Asterix I in February 2023 and c) $108.0 million under a new financing arrangement to partly finance the acquisition of the M/V Itajai Express in January 2023, partly offset by the scheduled principal payments for the period of $64.0 million, the early repayment in full of the facility we entered into with CMB Financial Leasing Co., Ltd to partly finance the acquisition of the M/V Seattle Express, the M/V Long Beach Express and the M/V Fos Express, in February 2021, in a total amount of $23.4 million, and a $1.5 million decrease in the U.S. Dollar equivalent of the euro-denominated bonds issued by CPLP Shipping Holdings in July 2022 and October 2021 (the “Bonds”) as of September 30, 2023.
Operating Surplus
Operating surplus for the quarter ended September 30, 2023, amounted to $41.7 million, compared to $38.2 million for the previous quarter ended June 30, 2023, and $37.6 million for the quarter ended September 30, 2022. We allocated $34.4 million to the capital reserve, a decrease of $0.6 million compared to the previous quarter due to the net decrease in the rate of amortization of our debt. Operating surplus for the quarter ended September 30, 2023, after the quarterly allocation to the capital reserve, was $7.2 million.
Unit Repurchase Program
On January 25, 2021, the Board of Directors of the Partnership (the “Board”) approved a unit repurchase program, providing the Partnership with authorization to repurchase up to $30.0 million of the Partnership’s common units, which was effective for a period of two years through January 2023.
On January 26, 2023, the Board approved a new unit repurchase program, providing the Partnership with authorization to repurchase up to $30.0 million of the Partnership’s common units, effective for a period of two years through January 2025. During the quarter ended September 30, 2023, the Partnership repurchased 16,963 common units at an average cost of $14.36 per unit.
The Partnership has repurchased a total of 1,074,993 common units since the launching of the first unit repurchase plan on February 19, 2021, at an average cost of $13.46 per unit.
Quarterly Common Unit Cash Distribution
On October 23, 2023, the Board declared a cash distribution of $0.15 per common unit for the third quarter of 2023 payable on November 13, 2023, to common unit holders of record on November 6, 2023.
Sale of M/V ‘Cape Agamemnon’
On November 8, 2023 the Partnership concluded the sale of M/V Cape Agamenon generating gross proceeds from the sale of approximately $22.4 million.
Market Commentary Update
LNG market
The LNG/C market continues to experience solid growth. Term charter rates have remained firm with recent fixtures reported around $100,000 per day for 2-strokes, while the winter seasonal effect on the spot market seems to be more muted this year. While current rates are lower than last year, the year-to-date average is still higher compared to 2022. LNG trade is expanding steadily, with a projected tonne-mile growth rate of 3.5% in 2023, while latest projections see LNG/C fleet capacity growth of 9.5% in 2024 compared with tonne-mile trade growth projections of 4.9%.
Container market
The container shipping markets remains significantly below the highs witnessed in 2021-2022, as a result of declining demand, reduced port congestion and expansion of the shipping fleet. Consequently, spot freight rates have displayed varying trends across different routes over the course of the year, but, on average, they have fallen by approximately 80% from their peak in early 2022, returning to levels reminiscent of the pre-COVID era. Moreover, the vessel charter rate index experienced renewed softening in the third quarter of 2023 following some gains in the previous quarter and by August, it had declined by about 80% from early 2022 levels, although it remained approximately 55% above the pre-COVID trend.
The outlook for the remainder of 2023 and for 2024 suggests that container shipping markets are likely to continue to experience pressure due to declining demand and increased vessel supply.
Source: Capital Product Partners L.P.