Thank you for standing by, and welcome to the Capital Product Partners second quarter 2022 financial results conference call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer of the company. At this time, all participants are in 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 slowly press star one one on your telephone keypad and wait until you are announced. I must advise you that 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 allocations, 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. 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 obligations 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 assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement 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. 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. Since the end of the first quarter of 2022, we have announced a number of significant transactions for the partnership, including the divestment of our two oldest container vessels for $130 million and the agreement to acquire four new building vessels with long- term charters attached for $597.5 million. We have also, in the last week, successfully placed a EUR 100 million Euro bond maturing in seven years on the Athens Exchange. Turning to the partnership's financial performance.
Net income for the second quarter of 2022 was $20.4 million, compared with a net income of $35.4 million for the second quarter of last year, or $10 million if we exclude the gain from the sale of a vessel we sold at the time. Our net income more than doubled year-on-year when comparing the operational performance of the partnership. Our Board of Directors has declared a cash distribution of $0.15 per common unit for the second quarter of 2022. The second quarter cash distribution will be paid on August 12th to common unit holders of record on August 8th. The partnership's operating surplus for the second quarter was $43.9 million, or $12.7 million after the quarterly allocation to the capital reserve.
We continued acquiring units under our unit buyback program, and during the second quarter of 2022, we repurchased approximately 185,000 common units. As of yesterday, and since the inception of our unit buyback program, we have acquired a total of 592,190 units at an average unit price of $13.11. Finally, the partnership's charter coverage for 2022 and for 2023 stands at 95% and 92%, respectively, with a remaining charter duration corresponding to six point two years, taking into account the four new building vessels we have agreed to acquire and, of course, excluding the two containers we recently sold. Turning to slide three. Revenues for the quarter were $74 million compared to $39.8 million during the second quarter of last year.
The increase was primarily attributable to the net increase in the average number of vessels in our fleet by 27%. Following the acquisition of 6 LNG carriers during the second half of 2021, contributing $38.1 million of total revenue, partly set off by the sale of the 2 9,000 TEU container vessels in 2021. Total expenses for the quarter were $40.9 million, compared to $25.6 million in the second quarter of 2021. Voyage expenses increased to $4.5 million, compared to $2.2 million in the second quarter of last year, primarily due to the increase in the average size of our fleet and the increase in the voyage expenses incurred by one of the vessels in our fleet employed under voyage charters, compared always to the respective period of last year.
Total vessel operating expenses during the quarter amounted to $16.4 million, compared to $11.7 million during the second quarter of 2021. The increase in vessel operating expenses was mainly due to the net increase in the average size of our fleet versus the second quarter of last year. Total expenses for the second quarter of 2022 also included vessel depreciation and amortization of $17.7 million, compared to $10.1 million in the second quarter of 2021. The increase in depreciation and amortization was again mainly attributable to the net increase in the average size of our fleet.
General administrative expenses for the quarter increased to $2.3 million, compared to $1.7 million in the second quarter of last year, mainly due to the increase in the amortization associated with our equity incentive plan. Interest expense and finance costs increased to $11.7 million from $4.2 million in the second quarter of last year. The increase in interest expense and finance costs is attributable to the increase in the partnership's total outstanding debt following the acquisition of the six LNG carriers in the second half of 2021, and the increase in the LIBOR-weighted average interest rate compared to the second quarter of last year.
The partnership recorded net income of $20.4 million for the quarter, compared with net income of $35.4 million for the second quarter of 2021, or net income of $10 million for the second quarter of 2021 if we exclude a $25.4 million gain from the sale of a vessel recorded in that period. If we were to exclude this gain, the net income increase of the second quarter of 2022 to the second quarter of 2021 corresponds to 104%. 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 $43.9 million in cash from operations for the quarter before accounting for the capital reserve. We allocated $31.1 million to the capital reserve in line with the previous quarter. After deducting the capital reserve, the adjusted operating surplus amounted to $12.7 million. On slide five, you can see the details of our balance sheet. As of the end of the second quarter, the partners' capital amounted to $563.2 million, an increase of $37.7 million compared to $525.5 million as of the end of 2021.
The increase reflects net income for the six months and the amortization associated with the equity incentive plan, partly offset by distributions declared and paid during that period in the total amount of $6.1 million, and the repurchase of the partnership's common units for an aggregate amount of $2.9 million. Total debt decreased by $59.1 million to $1.26 billion, compared to $1.32 billion as of year-end 2021. The decrease is attributable to the scheduled principal payments during the period of $45 million, and a decrease of $14.1 million of the euro-denominated balance of the bonds, translating to U.S. dollars as of quarter end.
Total cash as of the end of the quarter amounted to $34.5 million, including restricted cash of $10.6 million, which represents the minimum liquidity requirement under our financing arrangements. Over the next two slides, you can find an overview of the recent transactions completed by the partnership during the quarter. On slide six, we discuss the sale of the vessels Archimidis and Agamemnon, which were built in 2006 and 2007 and were the oldest vessels in our fleet, with about a year and a half of remaining charter at a rate of $23,000 per day. We agreed to sell the vessels to a third party for $130 million, and expect to recognize an accounting gain from the sale of approximately $49.5 million.
Gross cash proceeds after debt repayment and before sale expenses are expected to be $102 million. Both vessels were delivered to their new owner in July 2022. Moving to slide seven. The partnership exercised its right of first offer to acquire 174,000 cu latest generation X-DF LNG carrier and three 13,000 TEU hybrid scrubber-fitted Tier III and Phase III dual-fuel-ready eco container sister vessels from Capital Maritime for a total consideration of $597.5 million. The partnership paid in June 2022 a refundable deposit of $30 million, and the remaining consideration will be paid upon the delivery of each vessel, including $7.5 million in CPLP common units, which will be issued upon the delivery of the first vessel expected in October 2022.
The LNG carrier, to be named Asterix One, is under construction by HD Hyundai Heavy Industries in South Korea, and delivery from the yard and to the partnership is expected in January 2023. The Asterix One is fixed on a long-term time charter with Hartree for a firm period of five years, which, together with the optional period, expires in January 2032. The three 13,000 TEU eco container sister vessels are under construction at HD Hyundai Samho, South Korea, and are scheduled for delivery to the partnership in October 2022 and then January and May 2023 upon their respective deliveries from the shipyard. The vessels have secured long-term time charters with Hapag-Lloyd for a firm period of 10 years, which, together with the optional periods, expire between October 2038 and May 2039.
All four vessels joining our fleet are exceptional vessels, adopting the latest in terms of energy efficiency design and equipment, and are in compliance with current and future regulatory requirements. For example, the three 13,000 TEU containers are both hybrid scrubber- and AMP-fitted , and their design is expected to offer substantial energy savings to their charterers. At the same time, they are the largest reefer ships ever built, with 40% more nominal intake compared to older vessels of similar design. Moving to slide eight. The partnership's forward contracted revenue now ranges from a minimum of $1.6 billion to a maximum of $2.6 billion if all charterers' options are exercised. Given the current market environment, especially on the LNG side and the scarcity of available vessels until 2027, we very much expect our charters to exercise all options.
In addition, our recently announced four- vessel acquisition is expected to contribute approximately a minimum of $481 million to our revenue backlog, which is already reflected in the numbers you see on this slide. Now turning to slide nine. The Partnership's remaining charter duration amounts to approximately six point two years, while charter coverage remains high throughout 2025, thus providing our unitholders with increased cash flow visibility. Please note that the charters of Adamastos, one of our LNG carriers, have exercised an option to extend the charter to seven years against a 3.5% decrease in the daily charter rate, and as a result, the Adamastos charter is now expected to expire at the earliest in September 2028. Now turning to slide 10.
In July, the Partnership, through its wholly owned subsidiary, CPLP Shipping Holdings PLC, issued a second seven-year senior unsecured bond on the Athens Exchange for EUR 100 million. The bonds, which are guaranteed by the Partnership, have a semi-annual coupon of 4.4% and will mature in July 2029. The proceeds are intended for vessel acquisitions, debt repayment, and working capital. It is worth noting the success of our second shipping bond on the Athens Exchange, which came less than one year after the first and was priced at the low end of the yield rates, as it was supported by exceptionally high demand, and was 3.6 x oversubscribed with total bids of approximately EUR 360 million. On slide 11, you can see the key terms of the bond.
The financial covenants are in line with the covenants under our current financing arrangements and the previous bond, as the net debt to market value adjusted total assets ratio should be less than 75%, while the Adjusted EBITDA to net interest expenses ratio should be no less than 2 x. Now turning to slide 12, you can see our debt maturities over the next few years. As you can see, we do not have any significant maturities until 2026 when our first EUR 150 million bond becomes due. In the meantime, we intend to use the additional liquidity generated by the sale of the two vessels and the proceeds of the second bond to repay the outstanding debt maturing in 2023 and 2025 under the two HSHI facilities.
The two facilities currently have approximately $95.7 million in debts outstanding after adjusting for the sale of the two vessels and a blended margin of 3.1% plus LIBOR, which today amounts to approximately 5.9% all-in cost. In this way, we will be left with seven vessels mortgage- free and having converted part of our debt from floating to fixed. According to the latest valuations we received at the end of the second quarter of 2022, the charter-free value of these seven vessels amounts to approximately $710 million. Hence, these mortgage-free vessels can be an additional liquidity lever that we will have at our disposal down the line, providing us with substantial financial flexibility. Turning to slide 13 and the LNG market update.
The spot markets saw a weaker start to the quarter, but rates soon strengthened as energy security concerns, high gas prices, and charterers' increased appetite for tonnage prevailed, counter to usual spot market seasonality. The Freeport Liquefaction terminal shutdown , which is expected to last until the fourth quarter of this year, has weighed somewhat on freight rates as of late, denting that upward trend. The period market, on the other hand, continued at the same time, its bullish run on the back of the geopolitical developments and the commodity market, with a two-stroke vessel for one-year charter currently valued at $165,000 per day. This all-time high for term rates is supported by the extraordinary level of gas prices, as TTF LNG pricing is averaged $34 per MMBtu year- to- date, and charterers are taking a conservative approach to securing shipping capacity.
In this gas price environment, the demand for modern two-stroke vessels is bolstered further as the savings for charters amount to hundreds of thousands of dollars per day when compared, for example, to steam vessels. Overall, demand fundamentals for LNG shipping remain robust as the expectations for global LNG trade have increased, and volumes are projected to grow by 5.3% in 2022. Sorry, by 5.3% in 2022 as LNG has been replacing reduced Russian gas inflows in Europe this year. We expect that investment in LNG infrastructure will intensify both in terms of new liquefaction projects, primarily in the U.S., and for receiving terminals in Europe and potentially in Southeast Asia in the long run.
The LNG fleet order book stands at around 40% of the current fleet, with 54 new orders placed during the quarter and 94 year- to- date, leaving only a handful of available slots for 2026. As a result of the continued increased demand as well as inflationary pressures in raw materials and equipment, shipyards are continuing to increase prices, with latest new build prices reaching $245 million per vessel. Slide 14, we review the container market. Market sentiment and activity during most of the first half of 2022 has been positive. Few fixtures were concluded due to a shortage of prompt ships and a more conservative approach by charters with regard to long-term tonnages.
The Clarksons Charter Rate Index rose 3% in the second quarter of 2022 compared to the previous quarter and stood at 423 points, an all-time high. However, towards the end of June and into July, the index dropped by approximately 6%. In June, the three-year time charter rate for a prompt eco wide beam 9,000 TEU container vessel like the Akadimos stood at $96,500 per day. The Akadimos, our first vessel opening up for employment, is expected to come off its present charter by the latest April 2023.
In the box freight market, spot rates remained firm with the SCFI Comprehensive Index averaging 4,200 points in the first half of 2022, up 50% compared to the same period of 2021 and more than triple the 2020 average. The market has seen close to record levels of container ship port congestion through the second quarter and into July. Such congestion, combined with the scarcity of available vessels, has resulted in persistent logistics chain disruptions and has supported tight container shipping market conditions. The new building market remained active during the first half of 2022, but contracting of new vessels was lower in the second quarter compared to the first. In total, 96 ships were contracted in the second quarter of 2022, amounting to 0.7 million TEU.
The order book has increased to 27.8% of the total fleet. Concurrently, no vessels were scrapped in the first six months of 2022, which comes as no surprise given the exceptional market conditions. As a result, fleet growth is expected at 3.4% in 2022, accelerating to 8.2% next year, while global container growth is expected to be flat this year and to grow by 2.3% in 2023. Overall, the outlook for the container sector remains positive in the short term, with logistical disruption likely to continue to provide support despite trade headwinds. Further ahead, an eventual normalization of market conditions appears likely at some point as capacity supply is expected to grow with increased new building deliveries in 2023. Now turning to slide 15.
As previously discussed, we have now exercised our right of first offer for four vessels. We still retain the right of first offer in two more LNG carriers currently under construction at HD Hyundai Heavy Industries in South Korea and delivering in late 2023. In addition, Capital Maritime has contracted an additional five sister LNG carriers from HD Hyundai Heavy, with delivery set for 2024 and 2026. As these vessels find attractive employment in a currently strong charter market, and subject to our ability to acquire these vessels, CPLP can potentially become one of the very few public companies that control a large fleet of latest generation LNG carriers with a unique portfolio of charters.
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 positive LNG market fundamentals ahead, as described earlier. Having secured further financial flexibility with the issuance of our second bond and the proceeds from the sale of our two oldest container vessels and in view of the strong cash flow generation we expect from our remaining fleet, as well as the new acquisitions, we expect to be in a good position to take advantage of such growth opportunities while continuing to return capital to unit holders through distributions and unit buybacks. With that, I'm happy to answer any questions you may have.
Thank you, sir. As a reminder to ask a question, you will need to slowly press star one one on your telephone. Please stand by while we compile the Q&A roster. I show our first question comes from the line of Ben Nolan from Stifel. Please go ahead.
Thank you. This is Michaela on for Ben, and thanks again for taking our questions. Just a quick one here.
Sure.
Would you be able to provide any insight on how you're thinking about maximum leverage? Additionally, what does capital firepower look like after the LNG vessel acquisition? Thank you.
Oh, sure. I think if you look at the average leverage across the six vessels we acquired last year, it's probably today less than 50%. That's partly due to the increase in the underlying charter-free asset prices and some debt amortization paid. Our indebtedness has been increasing quite a bit, if you compare it, for example, to the same period last year. Almost from the $400 million to $1.2 billion as at the end of the second quarter. But you'll find that net leverage continues to be at very reasonable levels as defined in our loan agreements, and that's below 40%.
I think, given the profile of our fleet, that is the average age of our fleet, and the employment profile, as we discussed, we have a minimum of remaining charter duration of six years, and against very creditworthy counterparties. There is definitely more room. You know, I think a leverage up to potentially 65%-70% can be reasonable if you have that type of employment profile. That is also always taking into account the potential volatility of your underlying assets. Right now, this leverage point is also on the back of a very frothy, if you want, container market, and we are very mindful of that.
The answer is that the LTV at any given point is under maximum leverage that you can take, which is also connected to the underlying assets and where the asset is in the cycle. I think the good thing is that with the addition of the LNGs, we have diversified our exposure in terms of the underlying assets. Secondly, LNG carriers have also shown over time that they have a smaller beta, so their asset value volatility is less compared to other assets.
I think that with the diversification of our asset base to both containers and LNG, and the fact that LNG tends to be more stable than other shipping assets in terms of its valuation. I think we have room to increase. The exact leverage, I think, will depend on where we think we are in each shipping cycle and making sure that even if there are more dire conditions ahead, the balance sheet can remain strong.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Omar Nokta from Jefferies. Please go ahead.
Hi. Thank you. Hey, Jerry. Good afternoon. I wanted to just ask about the. You mentioned the LNG carrier that was extended until, I believe, 2028 from 2026 originally in exchange for that 3.5% reduction. Is there an opportunity you think to do that with the other two ships that roll off in, you know, circa early 2025?
Hi, Omar. Yeah. This was a baked- in option, so that was part of the charter party agreement. The charter simply exercised an option that they already had. I think your question is very, very topical. So we are having, from time to time, such discussions with charters. Given the scarcity of available tonnage forward, even for 2026 and 2027 deliveries, and an increase in new building prices, there are discussions to be had with charters if you want to fix for longer. I think, given also the backdrop of the market environment, if we do something like that, and depending on which charter we're talking about, it could be that we extend at a higher rate, not at a lower rate. It does depend on, you know, which charter we're talking about across our fleet. Such discussions are being had as we speak.
Okay, thanks. Thanks for that. I guess for those two ships I was referencing that roll off in 2025, do they have a similar type of option to extend it, or would these be, you think, altogether just new charters?
Are you talking about the three BP ships or the Cheniere ships?
Just double- checking there. It's the Aristarchos and the Asklipios. I forgot the charter.
These are the two vessels that are fixed to Cheniere. These were fixed for three and a half years, the original term, and they have two one- year options. They run until 2027, really early 2027. These are at higher rates. The options that they have are at higher rates compared to what they have today. These, for example, could be prime candidates for a potential extension.
Okay, got it. Thanks for that clarification. One follow-up just on the container ships. You know, clearly, you sold those two vessels for $130 million. How are you thinking about some of the other container ships in the fleet today? You know, perhaps the narrow or the older 5,000 TEU ships built in 2008. Are those potential candidates you think to monetize, given where secondhand prices have gotten to?
Absolutely. I think it's a question of whether we find an interesting bid because these vessels run until 2025 and beyond. It will require a charter to take quite a long-term view. This is. I think if anything has changed in the container market, it's mostly that you don't have so much liquidity in the forward market. Today is very firm, and there is a lot of interest, and you can fix at, you know, very high rates, potentially historically high rates. This is what has changed, I think over, the last six months in the container market, that forward view. If we see interesting bids, we will definitely consider divesting from these assets. It is also very much in line with our policy of divesting from older ships. The bid has to make sense.
Okay. Got it. Thanks for that. I'll turn it over.
Thank you, Omar.
Thank you. Our next question comes from the line of Climent Molins from Value Investor's Edge. Please go ahead.
Good afternoon. Thank you for taking my questions. I wanted to start by asking about the increase of other expenses on a quarter-over-quarter basis. Could you provide some commentary regarding what has been the main driver behind this increase?
Hi, Climent. Do you mean in other income?
Yes, exactly.
Yeah. In other income, you'll find the effect of two things. First of all, the effect of the FX change in terms of our Euro exposure. As you know, we had in that quarter the EUR 150 million Euro bond exposure. As you have changes in the U.S. Dollar/E uro FX, you will see an effect creeping into the other income expense line. Then you have, on the other hand, the change in the fair market value of the swap, the hedge that we have done, for this bond.
In particular, in this quarter, the effect of the change in the fair value of the swap was a loss of $12 million. We had a gain from the translation of the euro-denominated debt of about $10.6 million. Just from these two things, we had the net effect, which is recorded in other income of -$1.4 million. We had some other income from certain other things that are potentially underreported claims. A certain piece of equipment that was installed on our vessels by the charters, and which we did not pay for, and that reduced that loss to $0.9 million. This is what you see in other income. It's most of it's a non-cash effect, but it's still shown there.
That's very helpful. Thank you. You recently completed the second raft of acquisitions, which are set to be delivered later this year and into 2023. Could you provide some commentary on how your capital allocation priorities will shift once the vessels are delivered? What's your current stance regarding the additional LNG carrier drop- downs?
I think it's a fair question, but for the moment, we want to concentrate on executing against the four vessel acquisition. That's a $597.5 million acquisition. We have vessels starting delivery from October until May next year. I think we want to make sure we get all this done before we think about our next move. As discussed previously, we want to make sure that at any given point, we retain a strong balance sheet with reasonable leverage. We do have room, but also the container market seems to be in flux.
We think that the container market will do well over the next few months, but what happens beyond that and well into 2023, who knows? I think before we commit to our next move, we want to see more of these of the announced transaction being executed. Hopefully, we'll start thinking about that towards Q3-Q4. Now, in terms of the remaining LNG carriers, you know, if there is a segment that we like, it's definitely LNG is definitely very interesting. I think we are in a multiyear upcycle for the latest- generation two-stroke vessels.
The economics for these vessels, together with this, in a market where commodity prices are high and are expected to remain high for at least the next few years, are going to be exceptional. You can see that already from the market. It is very much a segment where we would like to expand. I think in view of our business model, of course, we would also like to see more cash flow visibility on these assets, and currently, they have none. While we definitely want to grow in the LNG space, I think, as I pointed out in my prepared remarks, there's literally only one company out there that has a similar fleet to CPLP, which is only two- stroke LNG ships.
We want to make sure that we do it in the right way. I mean, so far, I think we have done a very well-timed entry into the LNG space. We have acquired seven LNG carriers, brand new ships, two-stroke ships, and the latest technology at an average price of about $208 million. T oday, a resale will be at $245 million plus, or potentially even higher. I mean, we have new builds being now contracted for 2026 and 2027 for $245 million. Then you have to add delivery costs on top. I think we look very good at the moment, but we want to make sure we do this the proper way.
Indeed. Thanks for the color. That's all from me. Thank you very much for taking my questions.
Thank you.
Thank you. I'm showing no further questions in the queue. That concludes our Q&A session. At this time, I'd like to turn the call back over to Jerry Kalogiratos, CEO, for closing remarks.
I thank you all for joining today. Have a good morning.
This concludes today's conference call. Thank you for participating. You may all disconnect.