Thank you for standing by, and welcome to the Capital Product Partners 4Q 2023 financial results conference call. We have with us today Mr. Jerry Kalogiratos, Chief Executive Officer, Mr. Spyros Leoussis , and Mr. Nikos Kalapotharakos, Chief Financial Officer of the company. At this time, all participants are on a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you'll need to press star one on your telephone keypad and wait for your name to be announced. I must advise you, this conference is being recorded 2 February , 2024.
The statements in today's conference call that are not historical facts, including our expectations regarding acquisition transactions and their expected effect on us, cash generation, equity returns, and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts or unit buyback amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including redelivery dates and charter rates, may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated.
Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We make no prediction or statement about the performance of our common unit. I would now like to turn the call over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.
Thank you, Rob, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. On 13 November of last year, we announced a strategic transaction for the partnership, which aims to transform CPLP into a leading LNG and energy transition-focused shipping corporation. We started executing on our business plan directly thereafter by concluding a $500 million rights offering and successfully closed the agreement to acquire 11 latest generation 2-stroke LNG carriers, with deliveries from the 4Q of 2023 through to the 1Q of 2027. We also agreed to negotiate the conversion of the partnership from a limited partnership to a corporation with customary corporate governance provisions by June of this year.
Finally, we also secured rights of first review refusal on two very large ammonia carriers and two liquid CO2 carriers, currently on order by Capital Maritime. On closing of the transaction on 21 December we took delivery of the first vessel under this agreement, the LNG carrier Amore Mio I, and shortly thereafter, on 2 January , we took delivery of the second vessel, the LNG carrier Axios II. In addition, we also agreed to sell the 5,100 TEU container vessel, Long Beach Express, in line with our stated intention to divest gradually from our legacy container assets. Turning to partner... The partnership's financial performance, net income for the 4Q of 2023 was $12.7 million or $16.3 million, excluding a $3.5 million impairment associated with the sale of two of our vessels.
Our board of directors has declared a cash distribution of $0.15 per common unit for the 4Q of 2023. The 4Q cash distribution will be paid on 13 February to common unit holders of record on February sixth. Finally, the partnership's current fleet charter coverage for 2024 and 2025 stands at 100% and 82% respectively, with a remaining charter duration corresponding to 7.2 years and contracted revenue backlog of $3.1 billion. Turning to slide four. Total revenue for the 4Q of 2023 was $95.5 million, compared to $79.9 million during the 4Q of 2022.
The increase in revenue was primarily attributable to the revenue contributed by the three new building containers and one new building LNG carrier we acquired between October 2022 and June 2023, as well as the LNG carrier, Amore Mio I, acquired in mid-December 2023, partly offset by the sale of our sole dry bulk vessel, the Cape Agamemnon, earlier in the quarter. Total expense for the 4Q of 2023 was $55.1 million, compared to $42.1 million for the 4Q of 2022. Total vessel operating expenses during the 4Q of 2023 amounted to $20.6 million, compared to $17.3 million during the 4Q of 2022, and were higher, mainly due to the net increase in the average number of vessels in our fleet.
Now, total expenses for the 4Q of 2023 also include a non-cash impairment charge of $3.5 million that we recognized in connection with the sale of the Cape Agamemnon and the Long Beach Express, and a vessel depreciation amortization of $22.2 million, compared to $17 million in the 4Q of 2022. The increase in depreciation and amortization during the 4Q of 2023 was mainly attributable to the net increase in the average size of our fleet. General and administrative expenses for the 4Q of 2023 increased to $5.7 million from $4 million, mainly due to the costs incurred in connection with the LNG transaction we closed in December 2023. Interest expense and finance costs increased to $27.9 million for the 4Q compared to $18.4 million for the 4Q of 2022.
The increase was mainly due to the partnership's average indebtedness and the increase in the weighted average interest rate to 6.6% from 5.4% in the 4Q of 2022. Net income per common unit for the quarter was $0.48, or $0.61 if we exclude the impairment, compared to $1.03 per common unit in the 4Q of last year. On slide 5, you can see the details of our balance sheet. As of the end of the 4Q, the Partners' Capital amounted to $1.175 billion, an increase of $536.5 million, compared to $638.4 million as of the end of 2022.
The increase reflects net income for 2023, other comprehensive income of $3.2 million relating to the net effect of the cross currency swap agreement we designated as an accounting hedge. The amortization associated with the equity incentive plan of $3.8 million, and the net result from the issuance of common units in connection with the rights offering of $498.7 million, partly offset by distributions declared and paid during the period in a total amount of $12.2 million, and the cost of repurchasing our common units under our unit repurchase program for an aggregate amount of $4.1 million. Total debt increased by $488.6 million to $1.8 billion, compared to $1.3 billion as of year-end.
The increase is driven primarily by the drawdown of $508.8 million to finance vessel acquisitions and a $10 million increase in the US dollar equivalent of the euro-denominated bonds, partly offset by the scheduled principal payments and the early repayment in full of one of our facilities for a total of $109.8 million. Total cash as of quarter end amounted to $204.1 million, including restricted cash of $11.7 million, which represents the minimum liquidity requirement under our financing arrangements. On slide 6, we provide an overview of the agreement for the acquisition of the 11 latest generation LNG carriers from Capital Maritime, for a total price of $3.1 billion, which closed on December twenty-first.
We remind you that the agreement included a $500 million rights offering at the price of $13.25, fully backed up by Capital Maritime and a $220 million seller's credit. On closing of the agreement on 21 December a total of $454.2 million was due to Capital Maritime by the partnership, broken down as follows: $141.7 million, being the equity part of the acquisition price for the Amore Mio I, on top of the lease financing that was in place and was taken over by the partnership. We took delivery of the Amore Mio I immediately, being the sole vessel in the water at the time of closing.
In addition, another $174.4 million was due to Capital Maritime, representing 10% of the relevant acquisition price of the six initial vessels. We define as initial vessels, the LNG carriers that we are going to take over and pay for the balance of purchase price, the day that they are going to be delivered from the shipyard. This means that for these vessels, we have no obligation until delivery. And finally, another $138.1 million was due for the four remaining vessels. We define as remaining vessels, the entities we acquired on the day of closing in December, which are party to the shipbuilding contracts of the four remaining LNG carriers, and hence, we took over their obligations under the respective contracts, including pre-delivery installments.
Now, with regard to the rights offering, Capital Maritime purchased 34.6 million common units pursuant to the standby purchase agreement for an aggregate amount of $493.6 million, as the rights offering was not fully subscribed. As a result, the amount of $454.2 million due to Capital Maritime was netted against the $493.6 million due from Capital Maritime, resulting in a net cash inflow of $39.5 million that was paid from Capital Maritime to the partnership in cash. Then to slide seven, the LNG carrier, Amore Mio I, was successfully delivered on 21 December to the partnership and is on a 3-year time charter with QatarEnergy Trading.
The charter is expected to generate about $162 million EBITDA from the delivery of the vessel to the partnership, to the completion of the charter. Upon acquisition of the Amore Mio I, we assumed indebtedness of $196.3 million in the form of a sale and leaseback financing. On slide 8, we review the delivery of the LNG carrier Axios II to the partnership, which took place on 2 January . The vessel commenced an index-linked 1-year time charter with a major commodity trader, which will be followed by a 7-year variable charter with Bonny Gas Transport Limited. Bonny Gas Transport, or BGT, maintains an option to extend the charter by an additional 3 years. The variable charter is expected to generate over the 7 years, approximately $250 million of EBITDA.
The vessel acquisition was financed by netting 10% of the purchase price against the amount due from Capital Maritime under the standby purchase agreement. A new secured, a new senior secured loan facility for an amount of $190 million, and a drawdown of $92.6 million under the sellers' credit facility. On slide 9, we review our capital expenditure commitments in relation to the four remaining vessels under construction. Our 2024 CapEx commitments amount to $1.2 billion, with $101.1 million representing pre-delivery installments due to the shipyard, and are expected to be paid within the 1Q of 2024. The remaining $1.1 million represents the balance due to CMTC upon delivery of each of the initial vessels.
This amount, this amount includes a balance of $282.6 million due for Axios II, which was paid on 2 January . Net of that, the remaining balance for 2024 is $801 million. We expect to finance this amount with approximately $720 million of senior debt and the remaining with a drawdown under the sellers' credit facility. The next year, with a significant capital expenditure, is 2026, when $863 million is due for pre-delivery and delivery installments due to the shipyard. This is expected to be funded through a combination of cash from the balance sheet, vessel financing and drawdown under the sellers' credit. We expect to have more details on the debt financing of these vessels closer to their respective deliveries.
On slide ten, we review our current debt amortization profile, excluding maturities. This includes the expected net sale proceeds from Long Beach Express, which will go towards the repayment of the outstanding sellers' credit balance. As you can see, we expect to reduce our debt levels by $335 million over the next three years, without taking into account any additional cash proceeds from the sale of container vessels. At the same time, and as I mentioned earlier, we expect to incur approximately an additional $720 million of debt in 2024 in order to take delivery of the remaining three LNG carriers we will be acquiring this year. The incremental debt amortization of this $720 million is expected to be on average around $34 million on an annualized basis.
Turning to slide 11, you can see our debt maturities split by year. It's important to highlight here that we do not have any material maturities until the year 2026, when our first EUR 150 million euro bond becomes due. Moving to slide 12, the partnership's contracted revenue backlog now stands at $3.1 billion, with over 80% of contracted revenue coming from LNG assets, with a highly diversified and high-quality customer base of 11 charterers. On slide 13, you can see the charter profile of our LNG fleet. Our contracted backlog of 78 years could increase to 113 years if all options were to be exercised. I should stress that we have no open vessels between now and the end of 2025.
We do have 4 vessels coming up for delivery and 1 for renewal in 2026, and an additional 2 vessels for delivery and 1 for renewal if charterers' options are not exercised in 2027. These vessels are expected to be seeking employment with a new wave of about 107-170 MTPA of additional new liquefaction capacity are expected to come online in the period between 2026 and 2028. We estimate that these projects alone, which have taken FID and export permits, will require between 190-120 additional vessels, with only 156 vessels due for delivery during that period. On slide 14, we can see the charter expiration of the container fleet. The contracted backlog of 47 years could increase to 82 years with all options exercised.
Since the announcement of our intention to divest from container vessels, we have seen significant inquiry for the sale of our vessels, given the quality of our fleet and the attractive charters in place. This has already culminated in the sale of one of our older Panamax vessels. We will continue to seek to divest from additional container vessels in an opportunistic manner, provided we can achieve a reasonable sale price compared to the contracted and expected cash flows and our expectations with regard to residual value going forward. Turning to slide 15 and the overview of the LNG market, I will pass the floor to our Chief Commercial Officer, Spyros Leoussis .
Thank you, Jerry. Overall, the reduced focus on energy security, along with warm weather and full gas inventories, have resulted in a decline in gas prices in 2023. This, combined with prolonged availability throughout the year, has kept charter rates lower compared to previous years. Spot rates for a two-stroke vessel averaged $171,000-$250,000 per day in Q4 2023, while the one-year time charter rate as of the end of January 2024 stood at $75,000 per day. Notably, 5-year time charter rates have exceeded those for shorter durations, reflecting anticipation of tightening conditions from 2026. On the longer term, 10-year rates exhibited an upward trend in 2023, influenced by increases in new building prices and interest rates, although this trend has moderated recently.
Charter markets for 2 strokes are expected to remain generally healthy in 2024 and 2025. The preference for two-stroke vessels remains robust, as the benefits of higher carrying capacity and lower boil off are still significant, even at lower gas prices. Rate differentials to older, less efficient owners continue to increase and we have now split rates even for 138-145 K steam vessels, as the market recognizes a material difference for an additional few thousand cubic meters of carrying capacity and the impacts of EEXI regulations on vessel speed. The United States became the world's largest exporter in 2023, a position held by Qatar for the last few years, closely followed by Australia, while China reclaimed its position as the largest importer.
In Europe, gas storage levels reached historic highs, with several Asian importers having also reached full capacity. The focus on canals heightened in 2023 and early 2020 and early this year, as reduced rainfall in Panama led to fewer transit slots through the canal. This could lead an additional demand for 45 LNG carriers per month from Q1 2024 until restrictions ease. Additionally, security concerns in the Red Sea have prompted vessels to avoid the Bab el-Mandeb Strait and Suez Canal, choosing the Cape of Good Hope asset instead. Analysts expect that redirecting all LNG carriers via the Cape of Good Hope should create additional demand for LNG vessels. Finally, the LNG fleet order pool currently starts at approximately 52% of the total fleet, encompassing 341 vessels on order. Shipyards, responding to heightened demand, find themselves fully booked through 2027.
The new building price, the new building price stands at more than $260 million per vessel for basic specification vessels. In 2023, there were 68 new orders, a decrease from the record-setting 185 ships ordered in 2022. More ordering is expected, is expected in order to meet the demand for anticipated liquefaction volumes in the years ahead. If liquefaction projects adhere to timelines and proposed projects secure final investment decision, the demand for newbuild is poised to outstrip current yard capacity until the decade's end.
Thank you, Spiro. As a final comment from me, and before we move to questions, I would like to draw your attention to slide 16. Here you can see an updated timeline of what we have set out to do. In the 4Q of 2023, we announced and closed the agreement for the acquisition of the 11 LNG carriers. We completed the $500 million rights offering, acquired the LNGC Amore Mio, and the four remaining vessels, and paid the 10% deposit for the initial vessels. We're now in the 1Q of 2024, have already taken delivery of the LNG Axios II, and agreed to sell one of our container vessels. Now, looking ahead, we are going to focus on the following key steps.
Firstly, the conversion of the corporate structure from an MLP to an LNG and energy transition shipping corporation, which we hope to conclude over the coming months. Secondly, and after the conversion, we will be working with our board to define the new capital allocation policy, free of the MLP mantle. Thirdly, we will continue to look for opportunistic divestments of our container vessels. And finally, we will continue to execute on our business plan by taking delivery of the next three LNG carriers with long-term employment in place in May, June and July of this year. And with that, I'm happy to answer any questions you may have. Rob, please open the floor for questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Omar Nokta with Jefferies. Please proceed with your question.
Thank you. Hey, guys, good afternoon.
Hi, Omar.
Thanks for the update. Hi, Jerry. Yeah, just wanted to ask a few questions from me, but maybe just a sort of simple one just to start off on the planned corporate conversion from a partnership to a corporation. Just simply noticed in the release the date of June twenty-first. It's a bit of an exact date. How do you feel negotiations or discussions are going on to make that deadline? And then what happens if it's not done by then?
So this was the undertaking that the GP and the partnership gave to each other when the wider transaction was being negotiated. So the idea is, this is the, let's say, the deadline. There are no direct consequences envisioned under the umbrella agreement. In the end, it is an intention to negotiate a commitment from both sides. But what I can tell you is that both the GP and the partnership are very much motivated to get the conversion done. We are still in early innings, as it is a process and both parties potentially are engaging advisors and whatnot.
But I think it's more a question of a few months rather than stretching beyond the deadline. As I said, I think both the GP, so Capital Maritime and affiliates, want to see the conversion take place sooner than later, and so is the board and the partnership. So I'm quite optimistic that we will be able to conclude this much earlier than the target date.
Okay. Thanks, Jerry, that's clear. And then maybe just, and I know you addressed this in the past, and I can sort of get a sense of it, but maybe just want to hear it from you, kind of. How are you thinking about the platform and the business overall once this corporate conversion is official, and how do you see this affecting or changing maybe the management operations or strategy? Any color you can give on that?
I think it is mostly a conversion that will affect corporate governance, so the abolition of the GP and the GP rights as well as the IDRs and whatnot. I don't think it will significantly change the strategy that we have already set out. I mean, you know, already the partnership has moved away from the contracted cash flow model, we now have acquired assets, a number of assets that have charters in place, but we also have a number of assets that do not have employment in what we perceive to be a very attractive period of time, given LNG fundamentals.
So in terms, I think, of the shipping strategy, already we have moved to a more, mixed model, if you want, with both contracted cash flows and, potential, exposure to the, underlying markets with, first-class assets. Now, with regard to, I think to the distribution, or the capital allocation policy, I think that's probably where you should expect also, to see changes. The MLP model is, more rigid, in a, in a way, with, a set, distribution, and, moving, from there, onwards. I definitely, CPLP, going ahead, expects to remain a disciplined steward of investor capital, and will, consider...
We will continue to have a balanced approach towards growth, debt repayment, and distributions, like we have done over the last few years. And we are going to definitely retain the $0.15 per unit until we set out a new capital allocation policy. But I think overall, the intention is to move to a floating dividend policy tied to a percentage payout of free cash flow generation and earnings. So that shareholders can participate in the potential upside as we fix our vessels going forward. But I think the details of that are going to be carved out once we have completed also the conversion of the partnership to incorporation. And of course, there are numerous parameters due to this.
But we'll talk about that when I think we have more details.
Okay, sounds good. Look forward to that. And then maybe just a final quick one for me. What's the right share count we should be using now, pro forma, or unit count, pro forma, the rights offering and the backstop agreement?
It's $55.3 million. I can-
Okay.
I can give you the exact share count offline.
Sounds good. Thank you. That's helpful. Thanks, Jerry. I'll turn it over.
Thank you, Omar.
Our next question comes from Ben Nolan with Stifel. Please proceed with your question.
Yeah. Hey, Jerry. So actually, I wanted to go back a little bit to the first part of the question or Omar's question. Can you help me understand what exactly is being negotiated? I don't think that IDRs are really a factor here, so how should we think about, you know, what, you know, what's, I guess, being negotiated, and how do you think about what that means from a monetary perspective? And is there maybe just a little bit more detail on what that process looks like?
So, the conversion entails the abolition of the GP, which means that there will be a sale of the GP units to the partnership. The consideration, what is, what will be negotiated, it's not being currently, will be the consideration for the sale of these GP units. The GP units come with two things, the IDRs, which, as you say, are far off, the money, and certain corporate governance rights and and control. There is a multitude of precedents out there in the space.
I think really what has to happen is the analysis of these precedents, what applies here, and what is really the value for the sale of these units, if any, incrementally to their obvious economic value. I should add that the consideration, again, the way that the consideration can be paid, be it cash, shares, combination thereof, is also something that could potentially discuss. So these are really the considerations around it. I cannot provide a framework because, I mean, simply, I don't have one yet. But I think as soon as we have something that we can announce, we will happily do so. This is the idea.
After all, we want to have this done sooner than later and behind us in order to move forward.
Okay, that's helpful, and, appreciating that you can't say what you don't know. So, we'll see, but, that framing it is helpful. And then secondly, just curious, obviously, we've seen a pretty sizable pullback in LNG spot rates here. Obviously, there's seasonality and everything else you guys talked about. But, with respect to the new builds that are yet to be contracted, maybe could you talk to the appetite of charters for... You know, they're obviously going to be world-class assets that are high performing and everything else, but in a weaker environment, has there been a change in the appetite for charters to contract those? And how are you thinking about the timeframe, for when you would expect to have employment locked in on those?
Yeah. Hi, hi, Ben. I'll take, I'll take this, Spyros. So, yeah, from, from our point of view, we see a very strong appetite from, from charters to charter the vessels. Obviously, this is totally uncorrelated to the current, to the current market. We are talking about, you know, 2, 3 years ahead of time. We don't have a specific timeline. I mean, we, we expect to fix before delivery, let's say. That's our, that's our timeline, and this is a strategy that we have implemented in the past, and it has been quite successful because we were able to, to capitalize effectively on the scarcity of slots and, ships availability closer to delivery instead of, competing with, new building slots.
In terms of interest, we are seeing interest from also all sorts of charters from, you know, either from fleet replacement projects, which I think will be quite significant also going forward. But obviously from new projects that will seek to transport the new LNG that they will be producing.
Okay, have you... I guess, just follow on. I know it's early, but, has there been any change in the, in the rate or maybe the, the tenor of contracts at all, given the current spot weakness, or, or is the market, long-term market sort of looking through that do you think?
As I told you, I think the long-term market is totally uncorrelated. A strong correlation for the long-term market is the shipbuilding price, which, as you know, remains quite robust, and we don't see any reason for the shipbuilding prices to reduce going forward rather than I think most likely is to move a bit further upwards rather than downwards. So I think that's the main and also obviously interest rates is a big element to the price of to the rates that we are seeing on long-term projects. So actually, the trend for long-term projects has been for prices to increase. If you see, I think the last done on the year, ten-year on the ten-year mark, we are talking about six-digit charters.
Right. Okay. I appreciate it. Thank you, guys.
Thank you.
Our next question is from Liam Burke with B. Riley Securities. Please proceed with your question.
Thank you. Hi, Jerry. How are you today?
Hi, Liam. I'm well. How are you?
Good. Thank you. You sold the Long Beach. You're beginning to divest of the container vessels. Could you give us a sense of the cadence? I mean, are you seeing a lot of interest, especially when you're looking at a container fleet that's probably going to have excess capacity for the next couple of years?
That's a good question, Liam. Actually, we definitely have seen no lack of interest. Don't forget that container owners and operators alike are coming from 2 years of an exceptional market. So, balance sheets, most balance sheets, are quite loaded, and people are seeking quality tonnage like ours. So far, we have had approaches for all our vessels, but we are quite opportunistic in the way that we engage. We believe that dogmatic exits have no place in shipping, and there have been examples of that.
I think you have to make sure that you are getting proper value as a function of your contracted cash flows, expected cash flows, and of course, residual value. So, in the end, we wouldn't mind keeping certain assets and just let them generate cash flow if we're not getting the proper price. But on the other hand, when we see what we perceive as a good valuation, we will be taking that. Having said that, and to answer the first part of your question, I expect that we will be able to announce more in the first half of 2024. But again, I don't want to commit to a specific timeline for divesting.
Sure.
from all the assets. This is not the intention.
That's certainly fair. And then on the Amore Mio I, you've got a period time charter for three years. Are you comfortable with that duration, or would you prefer it a bit longer? Understanding, like, short-term rates are a little softer. Why three years? Generally, I think that it would go a little longer.
So the Amore Mio I had a very attractive charter in place. I mean, just from this three years, we expect to generate or until it is November 2026, right? So until November 2026, the vessel is expected to generate about $162 million of EBITDA. So, you know, that's better than many long-term charters you may place.
Okay.
And, the other attraction of this three-year deal is that the vessel is coming off charter right at the time when we think that there will be peak demand from a new liquefaction projects. So, it's really at the end of 2026, which is for us a very good position. But really, the reason that we fixed the three years was the high rate. It was, I think, a very good trade-off.
Great. Thank you, Jerry.
Thank you, Liam.
There are no further questions at this time. I'd like to turn the call back over to CEO for closing comments.
Thank you, Rob, and thank you all, once again for listening in today.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.