Thank you for standing by, and welcome to the Capital Product Partners fourth quarter 2021 financial results conference call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer of the company. At this time, all participants are in 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, please press star one on your telephone keypad and wait for the automated message advising your line is open. I must advise you this conference is being recorded today.
The statements in today's conference call that are not historical facts, including our expectations regarding cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution 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 defined in Section 21E of the Securities Exchange Act of 1934 as amended. Those 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 those 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 assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no predictions or statements about the performance of our common units. I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.
Thank you, Ella, and thank you all for joining us today. As a reminder, we'll be referring to the supporting slides available on our website as we go through today's presentation. We are pleased to have announced last week the increase of the partnership's common unit quarterly distribution by 50%. The distribution will be paid on February tenth to common unit holders of record on February 3rd. Our board has also set a new quarterly distribution guidance of $0.15 per common unit compared to $0.10 previously. Net income for the fourth quarter of 2021 was $40 million or $18.6 million, excluding a $21.4 million gain from vessel sales, compared with a net income of $7.3 million for the fourth quarter of 2020.
Similarly, operating surplus for the quarter amounted to $37.9 million, compared to $20.7 million for the fourth quarter of 2020. During the quarter, we also delivered the motor vessel Adonis to its new owners and acquired the remaining four LNG carriers, thus completing our six LNG carrier acquisition program. I would like to remind you that underpinning the acquisition of the three additional LNG carriers to those announced in August 2021 was the issuance of EUR 150 million or approximately $174 million senior unsecured bond on the Athens Stock Exchange in October 2021, with a fixed coupon of 2.65% and a five year tenor. After entering into cross-currency swaps for four years, the effective coupon of the bond in US dollars is approximately 3.7%.
Turning to slide three. Revenues for the quarter were $63.6 million, an increase of 81% compared to $35.1 million during the fourth quarter of 2020. The increase in revenue was primarily attributable to the net increase in the average number of vessels in our fleet by 38% following the acquisition of the three Panamax containers in February 2021 and the acquisition of the six LNGs during the second half of 2021, partly set off by the sale of our two 9,000 TEU vessels in May and December 2021 respectively. Total expenses for the quarter were $35.7 million, compared to $24.6 million in the fourth quarter of 2020.
Voyage expenses for the quarter increased to $3.2 million, compared to $1.9 million in the fourth quarter of 2020, primarily due to the increase in the average size of our fleet. Total vessel operating expenses during the quarter amounted to $14.9 million, compared to $10.3 million during the fourth quarter of 2020. Again, as a result of a net increase in the average size of our fleet. Total expenses for the fourth quarter also included vessel depreciation and amortization of $14.8 million, compared to $10.7 million in the fourth quarter of 2020. The increase was mainly attributable to the net increase in the average size of our fleet.
General administrative expenses for the quarter amounted to $0.7 million, compared to $1.8 million in the fourth quarter of 2020. The increase in general administrative expenses was mainly attributable to fees and expenses incurred in connection to the acquisition of the four LNGs during the fourth quarter of 2021 and the bond issue on the Athens Exchange.
Interest expense and finance costs increased to $8.9 million from $3.4 million in the fourth quarter of 2020, due to the increase in the partnership's total outstanding indebtedness, partly offset by the decrease in the LIBOR weighted average interest rate compared to the fourth quarter of 2020. The partnership recorded net income of $40 million for the quarter compared with a net income of $7.3 million for the fourth quarter of 2020. On slide four, you can see the details of our operating surplus calculations that determine the distributions to our unit holders compared to the previous quarter. Operating surplus is a non-GAAP financial measure, which is defined fully in our press release. We have generated approximately $37.9 million in cash from operations for the quarter before accounting for the capital reserve.
We allocated $31 million to the capital reserve, an increase of $16.5 million compared to the previous quarter due to the increased debt amortization resulting from the acquisition of four LNGs in the fourth quarter and the inclusion of the capital reserve of $8.5 million corresponding to an additional non-cash reserve that our board has decided to set aside in view of the bond that we issued in the fourth quarter of 2021. The additional reserve represents the amount that we will need to accumulate per quarter in order to repay the bond in full on maturity. After adjusting for the capital reserve, the adjusted operating surplus amounted to $6.9 million. On slide five, you can see the details of our balance sheet.
As of the end of the fourth quarter, the partners' capital amounted to $525 million, an increase of $103 million compared to $422 million as of year-end. The increase reflects the net income for the full year 2021, $15.3 million representing the value of the 1.1 million common units issued as part of the consideration paid for the acquisition of the two LNG carriers, and the amortization associated with the equity incentive plan, partly offset by distributions declared and paid during the period, the total amount of $7.6 million, and the repurchase of the partnership's common units for an aggregate amount of $4.5 million.
Total debt increased by $938 million to $1.3 billion, compared to $380 million as of year-end 2020. The increase is attributable to the assumption of $876 million of debt in connection with the acquisition of the six LNGs. The incurrence of another $36 million of debt in connection with the acquisition of the three Panamax container vessels in February 2021, and the issuance of EUR 150 million in senior unsecured bond on the Athens Stock Exchange. The increase was partly offset by the sale of two 9,000 TEUs and the debt repayment under the respective financing arrangements, the total amount of $96.2 million, and scheduled principal payments of $49.3 million during the period.
Total cash as of the end of the quarter amounted to $31 million, including received cash of $10.6 million, which represents the minimum liquidity requirement under our financing arrangements. Turning to slide six, during the fourth quarter of 2021, we took delivery of the remaining four LNG carriers, namely the Attalos, Asklipios, Adamastos, and Aristidis I, successfully completing the acquisition program of six high specification, late generation, two-stroke XDF Mark III Flex LNG carriers with long-term employment in place, exceeding $1.2 billion in value. Specifically, the six ships were acquired at an average price of just short of $204 million and are under long-term time charters with BP, Cheniere and Engie, with a weighted average remaining charter duration of 5.7 years and an average rate of approximately $70,000 per day.
As the four LNGs were delivered towards the end of 2021, we expect to see the full impact on the partnership's financials in the first quarter of 2022, with total operating days for the six vessels expected to amount to 540 days versus 321 days in the fourth quarter of 2021. On slide seven, you can see our debt repayment schedule through 2028. Effectively, we don't have any significant debt maturities until the end of 2026. The only significant near-term maturity is that of the HCOB syndicate facility, which matures at the end of 2023 with a balloon payment of $73.5 million.
I would like to highlight that presently the charter-free market value of the collateral fleet is about 10 x the value of the balloon payment. As a result, we not only expect this refinancing to be very straightforward, but also a potential lever for additional liquidity. Now moving to slide eight, the partnership's remaining charter duration amounts to approximately 4.9 years on the back of the six vessel acquisition, while charter coverage remains high throughout the next four years, thus providing our unitholders with increased cash flow visibility. On slide nine, you can see our contracted revenue on aggregate and on a per year basis, as well as the contracted revenue contribution from each of our charters.
Importantly, with the addition of the six LNG carriers, we have secured significant contracted revenue of close to $290 million for 2022 and 2023, while contracted revenue remains high until 2025 when certain of our container vessels roll off their charters if certain options are not exercised. We're also pleased that our charter portfolio consists of seven high quality counterparties, having diversified our customer base with the addition of three investment grade charters, namely BP, Cheniere and Engie. BP represents our largest customer and accounts for about 40% of our contracted revenues. Turning to slide 10 and the LNG market update.
The fourth quarter started with a common winter pattern of a very tight freight market, with global LNG exports setting an all-time record during December, led primarily by U.S. exports. However, the inversion of the commodity price spread between Europe and the Far East led to a weaker spot market for LNG carriers towards the end of the quarter as the flow of cargos to Europe instead of the Far East adversely affected tonne-mile demand. Overall, demand fundamentals for LNG shipping remain robust as liquefaction capacity is expected to grow by 8% and 7% in 2023 and 2024 respectively, with most of the additional new capacity being added in the U.S.
In particular, about 75 MTPA of additional liquefaction capacity is expected to go online in the U.S. by the end of 2024, compared to 70 MTPA today. The LNG fleet order book stands at 27% of the current fleet, with 30 new orders placed during the quarter, utilizing almost all available shipyard LNG carrier slots up to mid-2025. As a result of the increased demand and the strong fundamentals of the LNG market, competition for berths from other segments such as the container market, as well as inflationary pressures in raw materials and equipment, shipyards are continuing to increase new building prices, with shipyard quotes currently in excess of $220 million per vessel for higher specification LNG carriers.
The increased LNG commodity prices and charterers preference for larger cargo sizes as the LNG export market continues to expand favors increasingly latest generation two-stroke LNG carriers such as the vessels owned by CPLP. The rate differential in view of increased cargo intake, lower effective boil-off and lower consumption in a world of a $25 LNG price per MMBTU has increased to $40,000 per day compared to a TFDE vessel and $70,000 per day compared to a steamship for a U.S. to Europe round trip. At the same time, as we see increased focus on greenhouse emissions in shipping in general, and for LNG carriers in particular, including methane emissions, the preference for the latest generation vessels could become even more pronounced and as a result lead to an even greater earnings differential between latest generation LNG carriers and older vessels.
On slide 11, we review the container market. Momentum remained very strong during the fourth quarter and into early 2022, with freight and charter rates surging to record highs. The Clarksons Containership Charter Rate Index stood at 362 points in December, up 280% since the beginning of 2021. Also underscoring the strength of the market, a 15-year-old standard 8,500 TEU vessel was fixed recently for five years at $64,000 per day. Record charter rates have been driven by a range of factors, including strong demand, exceptional freight rates, severe logistical disruption, and the trend towards longer periods that has restricted tonnage's availability, especially the larger sizes. Looking ahead, the outlook remains positive for 2022.
Low new build deliveries at approximately 1 million TEU for this year and vessels that have been fixed on medium- to long-term period charters last year are expected to keep tonnage availability limited also in 2022. As such, demand growth is expected to outstrip supply growth for a second consecutive year. Overall demand growth is now expected at 3.8% for 2022, with supply growth forecast standing at 3.6%. In addition, the appearance of the highly contagious Omicron variant has exerted further pressure on logistical chains worldwide, thus further restricting vessel supply. Nevertheless, the medium- to long-term demand outlook remains more challenging due to the potential tapering of stimulus measures and easy monetary policy, resulting in increasingly more normalized consumer spending.
If this coincides with an easing of the logistical bottlenecks, which would release more capacity in the container market, we can potentially see a slowdown in terms of freight and charter rates that might be further adversely affected by increased new build deliveries from 2023 onwards. On the order book front, after the massive surge of orders during the first three quarters of 2021, we have observed a noticeable slowdown in contracting during the fourth quarter. During the quarter, it is estimated that 56 container vessels were ordered, which compares to an average of 171 vessels during the first three quarters of the year. Overall, the container vessel order books stood at 23% in mid-January, up just 0.4% from the third quarter of last year. Now moving to slide 12.
We're very pleased that our board has announced an increased quarterly distribution by 50% to $0.15 per quarter for the fourth quarter of 2021, and together set a new increased distribution guidance of $0.15 per quarter as a result of the addition of the 6 LNG carriers to the partnership fleet and the expected associated increase in earnings and cash flow going forward. Overall, we tend to continue to return capital to our unit holders as we have done every quarter since our IPO in April 2007. Over the last 15 years, the partnership has paid nonstop distributions for 58 consecutive quarters, corresponding to a total of approximately $960 million, including $819 million in cash distributions and $140 million in distributions in kind.
Going forward, we expect to continue increasing our common unit distribution as we increase our distributable cash flow with new additions to our fleet. In addition, having the six LNG carrier acquisition program behind us that strained our liquidity during the third and fourth quarter of last year, we can now resume our unit buyback program, which we put in place early last year. As mentioned earlier, since the launching of the unit buyback program in February 2021, we have repurchased common units in the amount of $4.5 million. Now turning to slide 13, and in terms of future growth opportunities, there are a number of additional acquisitions that we are targeting in the short to medium term. In the short term, our primary focus will be the vessels for which we have a right of first offer.
A right we obtained as part of the agreement for the acquisition of the six LNG carriers. This includes three 13,000 TEU container vessels, with delivery from the third quarter of 2022 until May 2023, and which have a ten-year firm time charter in place, as well as three additional LNG carriers with delivery in 2023. The Asterix I is the first LNG carrier to be delivered in January 2023 and has secure time charter employment for a minimum of five years at a highly attractive rate. In addition to the above vessels, Capital Maritime has entered over the last few months into additional new building contracts for three more LNG carriers, with delivery set for 2024.
As these three additional LNG vessels find deployment and subject to our ability to acquire these vessels, CPLP can potentially become one of the very few companies that control a fleet of 12 brand-new latest generation LNG carriers with a unique portfolio of charters. As explained earlier, we anticipate that two-stroke latest generation LNG carriers like the vessels we already own and these potential drop-down candidates will benefit greatly from the LNG market fundamentals ahead. The total market value of the six LNG carriers and the three 13,000 TEU containers approximately $1.7 billion, thus giving us a strong growth pipeline for 2022 and beyond.
As we continue to grow the partnership's asset base and distribute book cash flow, we will also seek to increase the amount we pay out to unitholders in the form of common unit distributions and unit buybacks, thus executing our savings strategy of continuing to grow the partnership's asset base and at the same time returning capital to our unitholders. With that, I'm happy to answer any questions you may have.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If you'd like to ask a question, please press star and one on your telephone and wait for the automated message stating your line is open. Once again, it is star and one if you'd like to ask a question. Your first question is from Liam Burke of B. Riley. Please go ahead.
Thank you. Hi, Jerry. How are you?
Hi, Liam. I'm well. How are you?
Liam Burke, B. Riley. Hi, Jerry. How are you doing?
Liam, I'm very well. How are you? Can you hear me well?
I can hear you just fine. Thank you.
Perfect.
With this predictable cash flow and the fleet you have in place, you should be generating excess cash above your normal debt repayment and your unit payouts. You talked about, I mean, repurchasing some units opportunistically. Do you balance that against possibly accelerating your debt reduction?
I think, given the long-term employment we have in place and the associated cash flows, as well as the fact that some of our existing debt amortizes faster over the first few years, especially those that are associated with the loan facilities that are associated with the BP ships, given the structure of the charter, I think we are quite well-placed in terms of debt repayment.
In addition, if you look at our overall LTV, despite the despite us incurring quite a bit of additional debt in order to acquire the six LNGs, our gross leverage is still on the back of current charter-free values at approximately 46%, which is quite reasonable. In view of the accelerated debt repayments that we have in place in any case for the next two, three years, as well as overall leverage and long-term employment and cash flows that we have in place, I don't think we will be funneling additional cash towards debt repayments.
Okay, great. In your drop-down opportunities, you have a mix of LNG carriers and container vessels. There is some caution in the 2023-2025 timeframe of new container vessels coming online, obviously in the larger class. If I look at what you have, potential container carrier drop-down opportunities, those have nice long-term contracts associated with it. Are you biased one way or the other towards the LNG or container vessels in terms of what you'd prioritize on a drop-down?
A couple of things. Firstly, I agree with you, especially with very lofty container prices compared to historical averages. One has to make sure that the employment that is in place in any potential acquisition, especially when it comes to a conservative business model like ours, you write down those vessels very close to what is historically an acceptable residual. Having the 10-year charter in place plus options, of course, for these LNG carriers, and of course this will also depend on the negotiated sale price will give us a lot of comfort with regard to that. We are not really taking a bet on the current container market.
Now secondly, with regard to, let's say the focus in terms of drop downs, it's obviously what would qualify really for us are the three 13,000 TEU container ships and the LNG that has been fixed. The rest, I think, will have to wait until there is employment in place. Otherwise it is simply too speculative. We estimate that in very broad terms that these vessels will require equity of anywhere between $140 million and $160 million and could generate an EBITDA of approximately $60 million. The question is, as you say, what can and what will you do out of those? Subject to reaching a potential agreement on the acquisition of these ships, the fin...
For the financing, we have numerous levers at our disposal. Firstly, as you pointed out earlier on, our free cash flow generation is expected to increase materially going forward, as we have the full impact of the six LNG carriers, and that would be from the first quarter of 2022. Secondly, as I pointed out in my prepared remarks, there is some additional liquidity that we can source by refinancing certain of our credit facilities, which have ample room in view of the relatively small debt balances outstanding. Thirdly, I think we will continue to look for attractive external capital. You know, sources could be the preferred equity market, the fixed income market that we successfully tapped last year.
These sources could complement our internally generated cash flows, and potentially try to execute on all these four ships. I think that will very much depend on what access we have in terms of external capital. Again, like last time, the priority is to avoid any issuance of common. This is in view of the value dislocation, this is something that we will not entertain. In the last acquisition of the six LNG carriers, despite the huge program, we only issued $50 million of equity. I think it shows that this is the very last tool that we want to be using given the value dislocation.
I think it will very much depend on whether there will be external sources of capital. If we can, ideally, we would like to continue growing on both sides. That is, both the containers and the LNGs, and the LNG front. I should add here that one of the main criteria going forward is that we are committing to buying only modern eco vessels that are compliant with the latest regulations. EEDI phase III compliant, that is very important. We will not be looking at older vessels. We believe that the residual risk of older vessels is not properly priced in part distorted by the very lofty container market.
The hidden CapEx for many of the older vessels and the potential for even more punitive regulations after 2027 is quite significant. We are committing to acquiring only modern latest regulations compliant vessels, eco vessels, and potentially if we find good opportunities divesting from older assets.
Great. Thank you, Jerry.
Thanks, Liam.
Thank you. Your next question is from the line of Randy Giveans of Jefferies. Please go ahead.
Hey, Randy.
Howdy, Jerry. How's it going?
I'm very well. How are you?
Doing well. Two questions. First on your fleet. You have 100% charter coverage for the next two years outside of two vessels. Let's discuss those. First, for the Cape Agamemnon, what's the current employment of that vessel and when can or maybe will you look to sell that?
The Cape Agamemnon has earned on average around $22,000 in 2021. Its earnings are similar year to date. We continue to consider this vessel as a non-core asset, but we are very opportunistic about it. We had discussion to sell the vessel in the summer. Since then values have become softer and more importantly, liquidity in the market, especially for Capesize vessels, has somehow receded. We are monitoring this market and, if we find a good opportunity we'll sell. Now if a great opportunity arises, and you know for a six-12 month charter, we might take it, but it doesn't change the view that this is not a non-core asset.
Okay. Let's look at the Akadimos. I believe that one's on charter through September of this year. Is there any kind of option for the charterer to extend that vessel or that container ship charter? If not, I would assume you're already getting offers, right, for new longer term charters on that vessel. What's the update on that?
On the Akadimos, the charterers hold an option to extend the charter, which at its latest point, if the option is exercised, can take us to April 2023. However, I should say that this is one of the most efficient vessels out there with very high reefer capacity. Less than 10 ships of this size are expected to open up between now and its earliest delivery.
Yeah.
We should be in a good place. None of them have the reefer intake that the Akadimos has. Also this being very fuel efficient and with the momentum on reducing the carbon footprint of logistical chains, this vessel should be very well sought after. In my prepared remarks, I mentioned that an 8,500 TEU, so a much less efficient vessel with a lower reefer intake was fixed for five years around $65,000. That was for delivery in one, two quarters from now. I assume that we should be able to fix forward if the market holds, something along these levels, potentially higher.
Of course, like last time, if an offer comes to sell the vessel that we cannot refuse, that we will entertain as well. I think we're very well-placed. We have a fantastic asset for this market. It's as you say, an active market. We'll try to maximize returns be it through the charter which is what we are aiming for or a sale if this is great value.
Yeah. No, it's all fair. Good deal. I'll take some other ones, it's all fine. One more on capital allocation. Just curious how you maybe decided or the board decided on the distribution increase to $0.15 per quarter instead of maybe a higher number. With that, should we expect additional increases in the near term or is this basically an annual step up? Lastly, how do you view unit purchases relative to increasing distributions at these levels?
Let me start with the last question. When we're thinking of returning capital to unit holders, I think it's we're thinking of both, and we see them in a way as an aggregate of the money spent. In terms of the unit buybacks, we did about $4.5 million last year. We stopped very early in Q4 because we had to make sure we manage our liquidity. Now that the liquidity is building up again, we can start spending again. You know, overall, last year we spent somewhere between a quarter of our free cash flow in returning capital to unit holders, either through buybacks or quarterly distributions.
I think going forward, we are going to target a similar range anywhere between 20% - 25%. As let's say our distributable cash flow increases with new additions, we will be revisiting the distribution as the additions come in and in view of the wider growth plans and liquidity needs. I think for the moment, this is it. If let's say we deliver on more growth down the line, this is not far off. I mean we talked about potential acquisitions in Q3, Q4 this year. We will again reexamine the distribution as well as the unit buybacks in view of the impact of the new additions. I think that's more or less how we're thinking about it.
We have been also very clear with regard to the strategy. This is what we want and we will continue to return capital to unit holders, but this will be a combination with growing our asset base and distributable cash flow. I think we have done quite well so far, and we have delivered both significant value in terms of NAV and total returns for our unit holders. We will continue along these lines.
No, yeah, it's great. You know, we increased the price target recently and you're almost there, so keep up the great work.
Great. Thank you, Randy.
Thank you. As there are no further questions, may I hand the call back to Mr. Jerry Kalogiratos for the closing remarks.
Thank you all for joining us today.
That concludes the presentation. Thank you for participating. You may disconnect.