Thank you for standing by, ladies and gentlemen, and welcome to Dynagas LNG Partners conference call on the fourth quarter 2019 financial results. We have with us Mr. Tony Lauritzen, Chief Executive Officer, and Mr. Michael Gregos, Chief Financial 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 and one on your telephone keypad. I must advise you that this conference is being recorded today. At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect Dynagas LNG Partners business prospects and results of operations. Such risks are more fully disclosed in Dynagas LNG Partners filings with the Securities and Exchange Commission. Now I pass the floor to Mr. Lauritzen. Please go ahead, sir.
Morning, everyone, and thank you for joining us in our fourth quarter and year-ended 31st December 2019 earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the said period. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures, as well as a discussion of why we believe this information to be useful in our press release.
Let's move on to slide three. Our fleet of six LNG carriers are all contracted on charters to international gas producers with an estimated average remaining contract term of about 8.6 years. The operational performance of the fleet was good, with a utilization of 100% for the fourth quarter. The partnership reported a net income of $5.5 million and earnings of $0.07 per common unit for the same period.
Adjusted net income and adjusted EBITDA for the quarter were reported at $5.6 million and $24 million, respectively, and a distributable cash flow of $10.2 million. As of December 31st, 2019, total cash was reported at $66.2 million, of which $50 million is restricted in accordance with the terms of our credit facility. We also have a $30 million revolving credit facility provided by our sponsor. We paid in November 2019, a quarterly cash distribution of $0.5625 per Series A preferred unit for the period from August 12, 2019 to November 11, 2019, and a quarterly cash distribution of $0.546875 per Series B preferred unit for the period from August 22, 2019 to November 21, 2019.
Subsequent to the quarter, we also paid in February 2020, a quarterly cash distribution of $0.5625 per Series A preferred unit for the period from November 12, 2019 to February 11, 2020, and a quarterly cash distribution of $0.546875 per Series B preferred unit for the period from November 22, 2019 to February 21, 2020. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results.
Thank you, Tony. Moving on to slide four. We are pleased with the fourth quarter results, which represent the first full quarter after our transformative global debt refinancing, which was concluded on September 25th, 2019, with all of our vessels trading in their long-term charters. We are extremely pleased with the operational performance of our vessels, having reached 100% utilization under their charter contracts. Net income for the quarter increased by 711% to $5.5 million over the fourth quarter of 2018, and our adjusted EBITDA increased by 11% to $24 million for the same period. The increase is attributed to three factors.
Firstly, all of our vessels are delivered and trading under their long-term contracts at an average daily gross rate of about $62,000 per day per vessel, compared to $57,500 per day per vessel for the corresponding period in 2018, in which the Lena River was trading under a short-term contract prior to her delivery to Yamal in July of this year. The prior year, I'm sorry.
Secondly, we had no dry dock expenditures for the fourth quarter of 2019, compared to one dry dock in the corresponding period in 2018. Our next scheduled five-year mandatory special surveys and dry docks are expected to take place in 2022 and 2023. Thirdly, our average weighted interest expense dropped from 6.6% in the fourth quarter of 2018 to 5.2% in the fourth quarter of 2019, resulting in savings of about $2 million in interest.
This was despite our higher weighted average indebtedness for the quarter, which stood at $757 million as a result of the fact that for 30 days, we had our $250 million note outstanding, which was repaid on October 30th from the proceeds of the $675 million debt refinancing and our Series B preferred issuance, which took place in October 2018. Following the $250 million note repayment on October 30th, 2019, our average debt balance will decrease to reflect the debt outstanding on our only debt instrument, being our senior secured debt financing, which as of December 31st, amounted to $663 million. For the quarter, we were cash neutral as the cash flow from our long-term contracts was utilized to service our amortizing debt and pay distributions to preferred unitholders.
Going forward, since we have floating interest rate exposure, we expect to benefit from a material reduction in interest rates compared to where they were in the fourth quarter of 2019 and the first quarter of 2020. In this respect, we are closely monitoring the situation with respect to hedging our interest rate exposure. Moving on to slide five. Our debt profile has significantly improved following our global refinancing, in which we replaced low amortizing debt with amortizing debt with significantly lower interest costs. Just to put things in perspective, prior to our global refinancing, for the full year of 2018, we had a weighted average debt balance of $726 million, comprising mainly of low amortizing debt, for which we paid interest expense of $47 million.
With our new amortizing debt structure, which currently stands at $663 million, we expect our interest expense for 2020 to amount to $27 million, assuming current short-term rates. Therefore, comparing our prior low amortizing debt structure with our new amortizing debt structure, we expect savings of $15 million per year after accounting for the $5 million distributions to the Series B preferred unitholders, with a relatively small portion of these savings being attributable to lower short-term rates. As previously advised, balance sheet protection is our top priority, and growth initiatives have been put on hold for the moment.
Given that we are paying $48 million per annum in principal payments, which is 1.5 x the rate our ships depreciate and 1.3 x our current market cap, we expect to build equity and balance sheet capacity over time, and we expect our leverage metrics to gradually improve on a steady state basis from 6.6 x net debt expected last 12 months EBITDA for the fourth quarter 2019 to 5.2 x by the second quarter of 2021, assuming current LIBOR rates and barring any unscheduled off-hire.
As of 31st of December, net debt to book total capitalization stood at 61%. We are in the fortunate position of having a fleet of LNG carriers whose cash flow can be utilized to organically deleverage without any debt maturities until 2024. We will remain focused on improving our leverage metrics and free liquidity.
I will hand over the presentation to Tony.
Thank you, Michael. Let's move on to slide six. Our fleet currently counts six LNG carriers with an average age of about 9.6 years. We have a diversified customer base with substantial energy companies, namely Equinor, Gazprom, and Yamal LNG, which selected a joint venture between Total, CNPC, Novatek, and the Silk Road Fund. Our contract backlog is about $1.24 billion, equivalent to average backlog of about $207 million per vessel. Our average remaining charter period is about 8.6 years, which compares well versus our peers. Moving on to slide seven. With Lena River delivered into her multiyear charter on 1st of July 2019 with Yamal LNG, each of our six LNG carriers are now fully delivered and operating under their respective term charters. Our fleet of LNG carriers are fixed on term time charters with key energy companies.
We believe that the drivers for these charters were the characteristics of the fleet, including its ice class notation and our organization's track record. All the vessels are employed on time charter contracts, under which the charter pays all major voyage related variable costs such as fuel, canal fees, and terminal costs. Our counterparties are mainly asset strong energy producers that are typically able to forward program the vessels for periods of time, which gives us a certain degree of planning ability and cost control. We estimate our fleet to be 100% contracted in 2020, 92% in 2021, and 83% in 2022. Our earliest potential availability is the Arctic Aurora, which will be available in 2021, provided that Equinor does not exercise the option to extend the contract. The vessels have served Equinor with good feedback and results.
The next available vessel after the Arctic Aurora may be the Clean Energy, which contract expires in 2026. Now, the current charter market for LNG carriers is challenging, in particular due to the global COVID-19 virus situation, which is contributing to depressed gas prices. Although our income have not been affected by the situation, as all of our vessels are employed on term contracts, we are monitoring the outlook.
From an operational point of view, we are taking preventive measures to reduce the risk of seafarers or the staff getting infected by the virus. Let's move on to slide eight. We have a unique and versatile fleet. Five out of the six vessels in our fleet are assigned with ice class 1A notation. Therefore, the fleet can handle conventional LNG shipping as well as operate in icebound and subzero areas.
The initial capital expenditure for an ice class vessel is more expensive than conventional carriers. We estimate the operating cost between our ice class type carriers and conventional carriers to be very similar. To our knowledge, the company, together with our sponsor, has a market share of about 82% for vessels with ARC 4 or equivalent ice class notation.
To our knowledge, there are only two other LNG carriers in the world with equivalent notation, which are chartered out in the long term. We view the ability to trade in icebound areas as an important advantage due to the increased production of energy in such areas, and in particular, along the Northern Sea Routes. To our knowledge, Yamal LNG is producing at close to full capacity at their mega project, and we also expect further projects to be developed in that region.
In general, we view the ability to perform conventional and niche operations as an important driver into clearing attractive long-term charters. Furthermore, our fleet is optimized for terminal compatibility, which we believe is of value to our charterers, and the fleet consists of groups of sister vessels that provides for overall better economics operations, preventive maintenance, and redundancy. Moving on to slide nine. We are a premier energy shipping company. We are known as a reliable service provider able to operate in extreme harsh environments. Our fleet is relatively young compared with the world average and provides for trading versatility. The financial profile of the company is simple and provides us with competitive cost of debt, with a clear path towards reducing debt over time through a significant annual debt amortization.
The partnership has in place term charter contracts with international energy companies, generating cash flows that we expect to be channeled towards the amortization requirements of the financing facility, which we believe will result in building equity value over time and beyond this position the company for future growth. I now open the floor for questions.
As a reminder, ladies and gentlemen, if you wish to ask a question, please press star and one on your telephone keypad and wait for the automated message advising your line is open. Please state your first and last name before you ask your question. Thank you. Your first question will be coming shortly. The line is now open. Please go ahead, caller.
Yeah, thanks. Hello, this is Ben Nolan from Stifel. Good morning, afternoon, Michael, Tony.
Hi.
I liked the race car in the background there. I had a couple questions that sort of related really to the company. The first is, as it relates to maybe the ability to hedge or swap out the debt, could you maybe just frame in that a little bit, how much of that debt, well, is any of it hedged right now? Beyond that, how much do you think you feel comfortable hedging or effectively kind of just locking in the cash flows entirely?
Yeah. Hi, Ben. We haven't hedged yet, but we're monitoring the situation on a daily basis because the market has been very volatile the last couple of days. We're getting quotes on a daily basis. I think it is a possibility that, if the price is right, we could hedge the whole thing. It's a day by day thing. The market is, as I said, so volatile that we'll have to see.
My next question relates to the preferreds. Under the terms of your credit agreement, I know that there's not a lot of cash left over. Still, the preferreds are trading substantially below par in this environment. Is there any ability or appetite at all to be able to maybe pick off a little of that or buy a little of that back or something in the current market, given that the yield is pretty substantial here?
Well, listen, it's difficult for the moment because we had $66 million on our balance sheet as of December 31st, and let's not forget, $50 million of this is blocked in the collateral accounts under the terms of our credit agreement. That equates free cash of about $2.5 million per ship. We have to be a little careful since we need some cash on the balance sheet for safety in case something unexpected occurs from an operational perspective. Having said that, if we build up a meaningful cash position over time, this could be discussed. As I said before, this massive drop in interest rates has helped towards that direction.
Sure. Okay, last, just for Tony, I'm curious as sort of maybe the state of the ice class ship appetite. Obviously, currently, the spot market's not terribly strong for regular LNG carriers. Is there, and in particular, with the continued movement forward for some of the Russian Arctic projects, Arctic LNG and others, is it really developing in your mind into maybe kind of a completely two-tiered market where this little niche space that could maybe continue to earn really good rates if they were available despite sort of a softer maybe broader market for the LNG carriers?
Yeah. Thank you, Ben. To be honest, I don't think we have seen that this has really developed into a two-tier market. Simply because there are not so many of these Arctic projects around. On the Arctic project side, you don't have continuous fixing of vessels and data points that would kind of establish a two-tier market. I do believe that, as we have seen before, with, for example, when we fixed our vessels to Yamal LNG, was that they wanted ice class vessels. We had ice class vessels. There were almost none around. I think it's reasonable to believe that going forward with new projects in the same region, that they will need similar vessels, and that there will be an opportunity for potential open vessels in the future there.
Now, again, the benefit of the vessels that we have is that they can serve both the open market without handicap and serve this particular niche market. We would just have to wait and see. Right now, we don't have any opening until 2021, I think it's about August. We are not in a rush to do anything.
Okay. All right. I appreciate it. Thanks again.
Thank you very much.
Thank you. We will now take our next question. Please go ahead, caller. Your line is now open.
Liam Burke, B. Riley. Good afternoon, Tony. Afternoon, Michael.
Hi, Liam.
Tony, you mentioned in your prepared statements the attractive nature of your fleet and your competitive advantage. You also mentioned that the LNG market's kind of tough right now with gas prices so low. If you put that together and you look at Avenir and that charter expiring in mid 2021, are you comfortable enough that you're going to get a favorable rate on that renewal?
Yeah, that's a very good question. To be honest, it's an impossible question to answer because mid 2021 is a good time from now. Due to this virus situation, the drop in oil pricing, we've seen a serious disruption in the LNG shipping market. Right now, if we were to engage in any discussions right now, I wouldn't expect a pricing to be very good. What we're seeing slowly is that while people are coming back to their desks and factories in China, gas demand is starting to emerge, and shipping demands are starting to emerge right now, which we see on the spot market. We don't see it on the term market yet, but we see some movement on the spot market. I think that what happened now in the market was two things, really.
It was, energy shipping is cyclical, so we were, and are in any event, in the low part of the cycle because we're exiting the winter market. The winter market tends to be good because a lot of gas in the Far East is required for heating, and now we're exiting that market. In any event, it would have been a low market. Then we had this virus situation on top, which just amplified the down part of the cycle. I think that we will have to see what summer brings and what happens towards the coming winter, and then we would be able to give a view on the market. Right now, it's just very difficult.
Sure. Your debt amortization is twice your vessel depreciation, creating nice underlying value there. Presuming you don't refinance and this debt continues to amortize, is there a level, not specifically, but is there a level of leverage where you're comfortable looking at reallocating capital to other opportunities, maybe looking at assets?
Looking at assets is, leverage is definitely part of the equation, but it's also many other factors that need to be taken into consideration. I think that the level, the trajectory of our debt and the way it amortizes means that in a couple of years, we will be at a level which will make us feel more comfortable in general. We don't have a specific number, but we see that trajectory over time, our leverage going down below 5 x, and more than that over the next couple of years. As our leverage goes down, obviously, it makes it easier to discuss other things.
Sure. All righty. Well, thank you very much.
Thank you.
Thank you. As a reminder, ladies and gentlemen, should you wish to ask a question, please press star and one on your telephone and wait for the automated message advising your line is open. We will now take our next question. Please go ahead, caller. Your line is now open.
Howdy, gentlemen. It's Randy Giveans at Jefferies.
Hi, Randy.
Hey, just looking at your kind of overall fleet, I know you said Yamal production is still blowing and going. Any other kind of changes that you've seen in terms of just vessel movements or operations globally? Have vessels slowed down now that there's less activity? What can you kind of tell us from an operational side?
Yeah. Thank you for the question. Look, I think the main change that we saw in the last month was the reduced amount of volumes going to China, and a lot of diversions. Vessels that were originally going to China, or to a specific port in China, were diverted away. Obviously there were a lot of consequences as a result of that. I think that's the single biggest change that we saw. I think that was a strong contributor to lower gas prices, because suddenly that was a signal that China was shut to buy more gas. Where shall the seller now send this gas? Suddenly that had a very quick, dramatic impact on energy prices.
As we said in the conference call, in the presentation just earlier, we are starting to see the emergence of demand of spot shipping again, and people are coming back to their desks in China. It seems that they have the virus under a certain degree of control there. We expect the demand to increase going forward so that we can facilitate their industrial production.
Okay. Just looking at Dynagas specifically, the stock's obviously fallen 50% in a month. It's down to a market cap of maybe $40 million. Your sponsor already owns 45% or so. Why not just kind of take it private here, roll it back in and undo the kind of public listing?
Well, no, that's not our focus. What we said is our focus right now is just to deleverage and improve our liquidity. That's what our focus is at the moment, not taking the company private.
Okay. Well, that's it for me. Thank you.
Thank you.
Thank you. If there are no further questions, I will hand back to the speakers. Thank you.
Okay. Thank you very much for your time and for listening in on our earnings call. We look forward to speak with you again on our next call. Thank you very much.
That does conclude our conference call today. Thank you for participating. You may now disconnect.