Also guide 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 such 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 assume no responsibility for the accuracy and completeness of the forward-looking statement. 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, Paul. 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. During the Q2 of 2023, we took delivery of the motor vessel, Buenaventura Express, the last of 3 13,000 TEU container vessels we have agreed to acquire last year, together with the LNG carrier, Asterix I. Furthermore, we agreed to sell our sole dry cargo vessel, the motor vessel Cape Agamemnon, with delivery of the vessel to her new owners, expected in the fourth quarter of 2023. Finally, during this quarter, we completed the dry dock of the Athos and the Athenian, along with significant energy efficiency and emissions abatement upgrades.
Now, turning to the partnership's financial performance, net income for the Q2 of 2023 was $7.4 million. Our board of directors has declared a cash distribution of $0.15 per common unit for the Q2. The Q2 cash distribution will be paid on August 8th to common unit holders of record on August 2nd. We continued acquiring units under our unit buyback program, and during the Q2 of 2023, we repurchased 156,560 of the partnership's common units at an average cost of $13.30 per unit. Finally, the partnership charter coverage for both 2023 and 2024 stands at 96%, with the remaining charter duration corresponding to 6.7 years and contracted revenue backlog of more than $1.8 billion.
Turning to slide three. Total revenue for the Q2 of 2023 was $88.5 million, compared to $74 million during the Q2 of 2022. The increase in revenue was primarily attributable to the revenue contributed by the 3 13,000 TEU container new building vessels and the new building LNG carrier Asterix I, recently delivered to the partnership, as well as the increase in the daily rate earned by 2 of the partnership's LNG carriers, partly offset by the sale of 2 8,000 TEU container vessels in July 2022. Total expenses for the Q2 of 2023 were $58.6 million, compared to $40.9 million in the Q2 of 2022.
Total vessel operating expenses during the Q2 amounted to $23.5 million, compared to $16.4 million during the same period in 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 of certain of our vessels. Total expenses for the Q2 of 2023 also include a non-cash impairment charge of $8 million, that we recognized on the date we agreed to sell the Cape Agamemnon, and vessel depreciation and amortization of $20.9 million, compared to $17.7 million in the Q2 of last year.
The increase in depreciation and amortization during the Q2 of this year was mainly attributable to the net increase in the average size of our fleet, partly offset by lower amortization of deferred dry docking costs. General administrative expenses for the Q2 of 2023 amounted to $2.3 million, in line with the Q2 of 2022. Interest expense and finance costs increased to $25.5 million for the Q2 of 2023, compared to $11.7 million for the Q2 of last year. 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 to 6.28% from 3.46% in the Q2 of 2022.
The partnership recorded net income of $7.4 million for the quarter, or $15.4 million before the impairment from the agreed sale of the Cape Agamemnon, compared with a net income of $20.4 million for the Q2 of last year. Net income per common unit for the quarter was $0.36, or $0.75 before the impairment from the agreed sale, compared to $1 per common unit in the Q2 of last year. On slide 4, 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 $38.2 million in cash from operations for the quarter before accounting for the capital reserve.
We allocated $35 million to the capital reserve, an increase of $1.6 million compared to the previous quarter, due to the increased debt amortization resulting from the drawdown of the Buenaventura Express facility. After deducting the capital reserve, the adjusted operating surplus amounted to $3.2 million. On slide 5, you can see the details of our balance sheet. As of the end of the Q2, the partners capital amounted to $649.4 million, an increase of $11 million compared to $638.4 million as of the end of 2022. The increase reflects net income for the first half of the year.
Other comprehensive income of $1.7 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, incentive plan, partly offset by distributions declared and paid during the period for a total amount of $6.2 million, and the total cost of repurchasing our common units under our unit repurchase program for a total amount of $3.8 million. Total debt increased by $332.5 million to $1.6 billion, compared to $1.3 billion as of year-end 2022. The increase is attributable to a $5 million increase in the US dollar equivalent of our euro-denominated bonds as of June 30th.
The drawdown of a total of $392 million to finance new vessel acquisitions, partly offset by scheduled principal payments for the period of $41.1 million, and the early prepayment in full of one of our facilities for an amount of $23.4 million. Total cash as of the end of the quarter amounted to $104.7 million, including restricted cash of $11.7 million, which represents the minimum liquidity requirement under our financing arrangements. Turning to slide 6. The Buenaventura Express was successfully delivered to the partnership on June 20th and commenced a 10-year charter with Hapag-Lloyd. Hapag maintains 3 two-year options to extend the charter.
The acquisition was funded through a combination of a cash deposit of $6 million advanced in 2022, $100 million drawn under a new credit facility, and $16.5 million of cash at hand. The new credit facility has a quarterly principal repayments of $1.6 million, an eight-year term, and a balloon payment of $50 million due in June 2031. On slide seven, we provide a summary on our recent fleet developments. Our latest acquisition cycle has now been completed, and the partnership has taken delivery of 3 13,000 TEU hybrid scrubber-fitted Tier III and Phase 3 dual fuel-ready eco container sister vessels, together with the latest generation XDF LNG carrier, the Asterix I.
All vessels have commenced their long-term time charters, increasing our contracted cash flow, at the same time reducing the average age and carbon intensity of our fleet. The Q2 of 2023, the partnership completed the scheduled dry dock of two of our 10,000 TEU containers, the Athos and the Athenian, and the installation of a SOx scrubber system on each vessel. In addition, both vessels were retrofitted with a bulbous bow and silyl acrylate self-polishing technology hull coating, which are expected to improve the energy efficiency and carbon footprint of these vessels. The sister vessel, Aristomenis, completed her scheduled dry dock and was retrofitted with the same upgrades this month, leaving the yard on July 22nd. The partnership has reached an agreement with Hapag, whereby the latter will refund part of the total cost of these upgrades to the partnership.
On June 27th, the partnership agreed to sell the dry cargo vessel Cape Agamemnon, a non-core asset for the partnership. Delivery of the vessel to her buyer is expected by October 2023. In view of the agreed sale, the partnership classified the vessel as held for sale and recorded a non-cash impairment charge of $8 million. Moving to slide 8. The partnership's contracted revenue backlog now stands at $1.8 billion, with over 63% of contracted revenue coming from LNG vessels, with diversified and creditworthy customer base of seven charters. Turning to slide 9. The partnership's remaining charter duration amounts to approximately 6.7 years, while charter coverage remains at 96% for both 2023 and 2024.
It is worth noting here that our next period charter expiration does not occur before the Q1 of 2025. Turning to slide 10, we review the LNG market. Demand for LNG carriers on the term market remains strong, despite the recent drop from the record highs reached in the Q4 of 2022. Currently, 1-year TC rate for a two-stroke LNG carrier stands at $140,000 per day, while the term market is expected to tighten as we get closer to the winter, especially for modern vessels. Overall, the Q2 of 2023 saw a continuation of the seasonal downward pressure experienced the Q1 of the year, both on gas prices and spot charter rates.
However, towards the end of the quarter, there was a slight rebound in prices due to the emergence of interbasin arbitrage and contango into winter, while demand fundamentals remained strong. seven one-year deals were concluded in the Q2 of 2023, broadly in line with the quarterly levels in last year. Longer-term, 3-5-year deals are, however, slightly lower compared to last year, with five deals concluded year to date versus a quarterly average of seven last year. Recently reported fixtures for new building LNG carriers with prompt delivery lie around the $100,000 per day mark for a 10-year period. The LNG fleet order book currently stands at around 51.4% of the total fleet, with 331 vessels on order. Established shipyards have effectively no slots left until mid-2027, both in Korea and China.
New building prices continue to rise and currently stand at $261 million per vessel for a basic specification vessel. Year-on-year, LNG orders are down by approximately 70%. On slide 11, we review the container market. The container market conditions in the first half of 2023 were relatively soft due to weaker trade volumes and reduced port congestion. The Clarksons Charter Index stood at 103 points in the first week of July 2023. Although it has decreased 76% from the peak in April 2022, it remains more than 100% higher than the average recorded during the 2010-2019 period, and 1.8 times higher than the 2019 average.
The SCFI Spot Box Freight Index stood at 932 points in the first week of July 2023. Despite its decrease by 82% compared to the peak in 2022, it is only 3% lower than the average observed during the 2010-2019 period, and 15% higher than the 2019 average. Analysts and brokers anticipate that trade will improve in the second half of 2023 as the economy bottoms out. Compared to earlier forecasts, global container trade is now expected to grow by 0.3% in TEU, in TEU terms, against the previously projected 1.2% contraction in the Q1 of 2023, while the container fleet is expected to grow by 6.8%.
Looking ahead to 2024, analysts predict a more robust demand growth rate of 3.3% for the container trade, with supply also growing at a pace of 6.3%. As of the beginning of July, the order book for new vessels stands at 889 units, equivalent to 7.4 million TEU or 27.7% of the total fleet capacity. Demolition activity has also increased, with 38 units of approximately 73,400 TEU being demolished so far in 2023, compared to 11 units only in 2022.
Now turning to slide 12, and having completed a significant round of growth for the partnership, which we announced last year with the acquisition of the 3 13,000 TEU container vessels and the LNG carrier Asterix I, we review additional growth opportunities for the partnership. On this slide, you can see the order book of our sponsor, Capital Maritime & Trading, which among others, comprises an additional 11 latest technology LNG carriers. These vessels are second generation two-stroke vessels with a MEGA propulsion and shaft generator arrangement, thus reducing further the carbon equivalent emissions of these already very efficient vessels. Deliveries of these LNG carriers are expected between Q4 2023 and up to 2Q 2027.
Importantly, the 5 vessels delivering between 2023 and 2024 have either already secured term employment or are under advanced commercial discussions, with an average tenure of 7.5 years and approximate gross revenues of $1.4 billion. In principle, this constitutes attractive assets and subject to our ability to acquire these vessels, CPLP would be uniquely positioned over time to control a fleet of up to 18 latest generation LNG carriers with a diversified portfolio of charters. This would make CPLP the largest publicly listed owner of latest generation LNG vessels, with contracted cash flows and a nice mix of staggered expirations at a time when LNG fundamentals remain strong.
As we maintain financial flexibility, 10 unencumbered vessels and good cash flow generation, we believe that CPLP is strategically positioned to take advantage of such growth opportunities as we continue to focus on growing our distributable cash flow and renewing our fleet. With that, I'm happy to answer any questions you may have.
Thank you. We will now be conducting a question-and-answer session. If you would 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 participant using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question is from Omar Nokta with Jefferies. Please proceed with your question.
Thank you. Hi, Jerry. Good afternoon. I just wanted to... Hi, Jerry. Yeah, just wanted to ask about the, you know, obviously, you completed the acquisitions from last year. You took the 3 container ships and the LNG carrier, so now that's, that's completed and you're basically harvesting the cash flows. Then you just outlined on slide 12 the, the drop-down opportunities which you've continuously updated us with, and we've been seeing the contracts now filling in. How do you think about those right now in terms of, of timing? Can we expect drop-downs near term? Is it really just about, you know, timing of the vessel deliveries themselves, or is there something you're waiting for before proceeding with any drop-down?
Thank you, Omar. No, I think it has been important, as we have communicated in the past, to complete this acquisition cycle, before we start considering what we do next. Again, today, is a very premature discussion, as the board considers where we go from here and how we grow the partnership into the future. You know, as high-level thoughts, obviously growth is not being pursued for growth sake. When you look at our peers, especially those on the LNG side, we believe that by further growing the partnership fleet and becoming among the largest two-stroke LNG vessel owners in the public domain, it is possible that over time we can achieve more investor visibility, liquidity, and, what is also, the end goal here, a better equity valuation.
You know, in my pre-prepared remarks, as you say, this is just an outline of the LNG carrier order book of Capital Maritime. This is a big order book that's well in excess of $3 billion in terms of charter-free fair market value today. Of course, as you pointed out, there is also the distinction. There are about five vessels that either have or are very close to securing employment, and that would be, you know, an average charter duration of seven years, which is, I think, quite, quite attractive. Importantly, I think for the partnership, this is an interesting segment, and we see this as a multi-year upcycle, especially for vessels like this, that is, two-stroke vessels.
I think this is supported by the increasing commodity supply, and we have seen the FIDs taken this year. Energy security considerations that have played also a very important role over the last couple of years, and I expect them to, to remain at the forefront. Of course, the role of that LNG is expected to play as a transition fuel to net zero, which of course, in turn, is expected to spur long-term demand for the commodity. I, I think there is a multi-year upcycle with regard to demand for LNG and hence also LNG vessels. You also look at the dynamics of the LNG fleet. This is quite unique in, I think, in, in shipping, in terms of how the technological advances have changed unit rate cost over time.
You look at the advantage that the two-stroke vessel brings compared to a TFDE or even more important, the steam vessel. You think also about the emissions, especially in the framework of ETS or carbon levy. You can see also that there will be a very interesting vessel supply environment. This is, you know, this type of demand-supply dynamics, you, you don't, I, I think, necessarily see in other, in other segments. You know, as far as CPLP is concerned, the, the segment is very interesting. There is access to to drop-downs. The question will be how we fuel this potential further expansion. Our cash position as of the end of the first half of this year amounted to about $105 million.
We expect good cash generation going forward, and we have a number of unencumbered vessels on the balance sheet, which could be liquidity levers. In certain cases in the past, as you know, we have also used our equity as a currency for such transactions, which could also be helpful in larger acquisitions. You know, we have to assess not only the attractiveness of the drop-downs and of course, how we grow our distributable cash flow, but also how we fund these acquisitions. I think this is what we're going to think over the coming months and hopefully have more to share soon.
That's... Thanks. Thanks, George. That's a very, very deep dive. Appreciate that. And it sounds like, you know, clearly, you know, Capital Maritime as an organization, has a pretty substantial size two-stroke LNG fleet and would be one of the biggest, right, publicly. As you think about that, and I don't want to put words in your mouth, but it sounds like before making any sort of commitments on that front, you're going to think further strategically about where CPLP is. You, you mentioned, you know, some of the unencumbered assets. Do you think that perhaps could one of the options be, monetizing the containership fleet over time and utilizing those proceeds for the investment in LNG?
Potentially, yes. I mean, you know, we could. We sold the Cape Agamemnon. Of course, this is something that we have signaled for, for some time. There is also a very conscious move from our side over the last few years to modernize our fleet. I mean, it started with the spin-off of the older tankers, then selling some of our older containers in a very tight container market, and bringing in brand-new containers and LNG carriers. I think we will have to think, as you say, exactly, this is what we need to think about, the positioning and the strategy. I'm not sure if it is.
if it is divesting, simply selling, for example, the containers, it might be more looking to, to how to structure transactions so that we can, if you want, unlock some of the, of the value that we have been creating over the last few years. I think we have been creative in the past, you know, from spin-offs to mergers, to whatever we, we, we think it's necessary to create more value for shareholders. I think that's something that we need to think about, but still quite, quite early, I think.
Got it. Thanks for, for that, Jerry. One just final one, you touched on this just in terms of more kind of taking a step back and just thinking about the LNG charter market itself. You know, you had a very... At this time last year, the spot rates were through the roof, and if I recall, and they had a pretty strong fall, since then, they've been a bit volatile towards the downside, but that's just the spot market. How would you characterize the term charter market here recently? It's obviously been very active, for maybe at least two years or so. How has that sort of been moving here over the past couple of months? Is that still firm?
Has there been any kind of impact from a softer spot market or lower LNG prices?
Well, I think that, apart from the seasonal softness that we see in the spot market, and then kind of affects the short, shorter period curve, you know, anywhere between 1 to 3 years. When you look at what has transpired in the long-term market, it has been increasingly at higher rates. When I say long-term market, you know, anywhere between 7 to 10 years. Over the last few months, we have seen FIDs for 3 new liquefaction terminals being granted. That's more than 41 MTPA. You know, you
Whatever multiplier you use, you still come up with anywhere between 70-plus new vessels that we will be requiring somewhere in the period 2000 to 2026, 2027. Then you look at the order book, which always looks quite big, if you think in nominal, in a nominal way, right? I mean, it's still 52% of the current fleet, but the uncommitted ships are only 33. And that's without taking into account potential removal of older inefficient vessels like steamships or whatnot. I think the long-term period demand is there. The softer commodity price and which and the seasonal downturn has affected slightly the short-term period market, but it's still quite tight.
Not to mention, of course, that new building prices have been moving up. We are in reality, you know, we say that today you will order a basic spec ship for the second half of 2027. That basic spec ship, if you want to be half respectable in this market, means automatically mid-$160s plus, maybe even above that. You look at the delivered cost, taking into account cost of capital and whatnot, and maybe you are now much closer to $300 million, together with supervision and pre-delivery installments.
You know, in order to get a decent return on on a $300 million vessel for delivery in 2027, you still need to be very close to six-digit day rate numbers. I think for all these reasons, there might be short fluctuations, but still a very tight market overall.
Yeah. Interesting. Yeah, that's very helpful. Thank you, Jerry. I'll turn it over. Of course. Thank you, Omar.
As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the questions queue. Our next question is from Ben Nolan with Stifel. Please proceed with your question.
Hi, Jerry. This is Frank Galanti on for Ben. I wanted to follow up on the discussion around the LNG drop-downs, potential drop-downs. It's sort of sounding like growth through drop-downs is becoming a priority, and sort of correct me if I'm putting words in your mouth. See, can you sort of frame in how much capacity you think the partnership has for drop-downs? How do you sort of think about balancing that between paying down debt and returning capital to shareholders?
I think it's, this is exactly the question that we will need to answer over the coming quarters. You know, I pointed out to there, to our cash position and the unencumbered assets. You know, this is still a quite capital-intensive sport, LNG, the LNG industry. You know, there is so much that we can do with these tools. This is what we're going to think about, I think, over the coming months. Is it a priority? I think it is very much the same message that we, it hasn't really changed, that we have communicated before.
We have said that over time, we will continue to allocate about a quarter to a fifth of our free cash flow to, which is going to be returned to our unitholders, be it distributions and unit buybacks, and I think we are quite close to these levels. The rest, we will continue to focus on growth. Opportunistically, we will repay debts, you know, we can always repay debt and avoid that incremental cost of capital, and if needed, to relever if there is an accretive opportunity. I don't think we are ready to say what we want to do and how much we want to do, I think the message has not changed. It's really the same.
We will continue to be focused on growing both fleets, especially in the LNG and container segment, with the LNG being quite attractive at this point. With that, the same allocation. Return of capital to unitholders and then also equity going towards growth.
Okay, that's really helpful. Yeah, actually, following up on the leverage question, the euro-denominated bonds coming due in 2026, obviously it's a pretty far way away, but it's a big bullet maturity. Sort of given where prices have, or interest rates have gone, it would probably be more expensive to refinance. Is that... How do you think about that sort of, that specific debt instrument?
I think we have some time until we cross that bridge. We have been always prudent in the way that we calculate our capital reserve, even notionally. Despite this being a non-amortizing instrument, we are still when we're looking at the cash we generate, we allocate notional cash under capital reserve. Having said that, I think the, the basic, the base scenario is right now that we will potentially refinance with a similar bond closer to to maturity. The, the market, the Athens Stock Exchange seems to be open.
There has been a placement by another issuer recently, not very different pricing compared to what we achieved a year ago or so. You know, this is at the same time, we are also creating a lot of headway in terms of our leverage. I mean, we are repaying about $88 million of debt amortization every year. We have unencumbered assets. We are generating cash. One way or another, I, I think, there, we don't, we're not particularly concerned about that maturity.
That makes sense. One more, if I could, just in terms of, you said, about, a quarter to a fifth of, capital, to be returned to shareholders. Now that, all the vessel drop-downs have been completed, can you sort of talk about how you are thinking about the split between share buybacks, and distributions?
Yeah, I think it's, it's that very logic that we have communicated in the past. We have said that once the drop-downs are complete, that we will reconsider our distribution policy in line always with this with the strategy. I, I think that if you, if you look at what we're doing today, that is unit buybacks and distributions, we're actually quite close to these targets, having also somewhat increased the pace of our unit buybacks over the last few months. Now, I, I think the difference compared to when we started, is of course, the current rates, interest rate environment. I mean, when we started thinking about the drop-downs and the potential distribution, uptick.
It is a very different interest rate environment, and until we have more visibility with regard to the forward interest curve, we will continue with the same common unit distribution guidance of $0.15 per quarter. You know, the Fed decision just 2 days ago clearly demonstrates that we're not past that increasing interest rate cycle. I think we are in line with our stated policy with regard to how we, we, allocate our cash flows. Of course, we are going to be mindful of the interest rate environment and changing circumstances as to how we look at this in the future.
That makes a lot of sense. I really appreciate you taking the time. Thank you.
Thank you for it.
Thank you. Our next question is from Climent Molins, with Value Investor's Edge. Please proceed with your question.
Hi, Jerry. Thank you for taking my questions.
Hi, Climent.
I wanted to ask a bit about the environmental upgrades you've done over the past few months. Could you speak a bit about what kind of efficiency improvement are you looking at? Secondly, you mentioned that Hapag has paid for part of the cost. Should we expect charters to foot part of the bill on other potential upgrades going forward?
That's, that's a great question. The bow, the bow modification and the self-polishing acrylate paints, each of them, theoretically, they will give you net efficiency gains anywhere between 2%-4%. It's not always, they don't always work as you would expect, so it's not necessarily that you would expect 4 + 4 is equals 8%. They, they definitely make a difference. We expect that this will help the CII rating of the vessel and of course, the energy efficiency. I think we can maybe in 2 quarters from now, we can revisit this and give you actual numbers because these are for the moment theoretical.
From other bow modifications and use of paints, we see that they can be meaningful. Of course, the benefit is here for the charterer who pays for the bunkers. The charterer in this specific case, they also wanted a scrubber, which of course, does not really change the energy efficiency of the vessel but reduces SOx emissions. Effectively, what we have agreed, which is, I think, more unique to this charter party than in others, is that Hapag will pay parts of these modifications. You know, this is always a function, and without wanting to go into confide- the confidential nature of the agreement, it's, in the end, it's a function of market conditions, the age of the vessel.
You know, who is going to benefit most from these improvements and the duration of the charter. I don't think there is one-size-fits-all for this type of arrangements. As you know, it has been done. We have done it again with in the past with HMM and scrubbers. You know, we, for example, in that case, financed the scrubber installation cost, and we got an increased rate on our, on our charters. It can work in many ways, and as I said, it depends on, on the number of of things as to whether it will be the same for for future deals.
Makes sense. Thanks for the color. Regarding the dry docking schedule, you did a couple of vessels during the 2Q and the Aristomenis in July. Do you have any additional special service scheduled for the remainder of the year?
No, there is none for for this year.
All right. That's all from me. Thank you for taking my questions.
Thank you, Climent.
Thank you. There are no further questions at this time. I'd like to hand the floor back over to Mr. Jerry Kalogiratos for any closing comments.
Thank you all for joining us today, and wishing you all a great weekend.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.