A 9% Yield, 5 Straight Hikes, Record Earnings Again, No K-1

Looking for dependable income from qualified dividends? Maybe you should climb aboard GasLog Partners LP (GLOP), an LNG shipping stock with good management, strong earnings growth, and more distribution growth on the way.

Profile:

GLOP is a growth-oriented limited partnership focused on owning, operating, and acquiring liquefied natural gas carriers engaged in LNG transportation under long-term charters. GLOP’s initial fleet of three LNG carriers was contributed by GasLog Ltd. (GLOG), which controls GLOP through its ownership of the general partner and limited partner units.

GLOP now owns 12 LNG carriers that operate under multi-year charters with a wholly owned subsidiary of Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B). GLOP also has options and other rights under which it may acquire additional LNG carriers from GasLog Ltd. (Source: GLOP site)

Dropdown pipeline: On the Q4 ’17 earnings call this week, management commented on potential dropdowns for 2018:

“We feel that we’re very well funded for one dropdown and well on our way to two, which at our historical valuations would get us to our guidance.”

(Source: GLOP site)

Common Distributions:

Management just raised the distribution for the fifth straight quarter to $.5235. It goes ex-dividend on 2/8/18 and pays on 2/14/18.

GLOP’s management has achieved very steady distribution coverage, averaging 1.19X over the past four quarters:

Like many of the LPs we’ve covered, GLOP pays in a Feb-May-Aug-Nov. cycle. However, there’s one major difference – it doesn’t issue a K-1 at tax time – investors get a 1099:

Taxes – GLOP has elected to be treated as a C-Corporation for U.S. federal income tax purposes (investors receive a Form 1099 and not a Schedule K-1).

“Distributions received with respect to our units by a U.S. unitholder that is an individual, trust or estate generally will be treated as qualified dividend income. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. unitholder’s tax basis and thereafter as capital gain.” (Source: GLOP site)

GLOP also has preferred units available – GLOP-A and GLOP-B, at high yields.

Here’s a look at GLOP’s strong EBITDA, DCF, and distribution growth over the past three years – EBITDA grew 59% from 2015 to 2017, DCF grew 40%, and distributions grew 54%:

(Source: GLOP site)

Options:

We updated the GLOP covered call trade in our Covered Calls Table to include a July $25.00 trade. The July $25 call strike has a bid of $.55 and two ex-dividend dates before it expires.

Your total profit would be $1.60/unit ($1.05 in distributions + the $.55 call option premium) in a static scenario in which your units don’t get assigned before either ex-dividend date.

In an assigned scenario, you’d realize $1.30/unit in price gains (the difference between GLOP’s $23.70 price/unit and the $25.00 call strike price), plus the $.55 call option premium.

The trifecta would involve your GLOP units being assigned after both ex-dividend dates, in which case, your total profit would be $2.90. This is less likely to happen but has done so upon occasion.

Like any other equity, GLOP also could decline during this period – the upside is that the call premium would give you a bit of downside protection.

Conversely, selling a covered call will limit your upside participation to the difference between the call strike and the unit price, so, even if GLOP takes off like a speedboat, your captured price gain will still only be $1.30/unit in this trade.

The other way to “tiptoe through the tulips” is to sell cash secured puts below the underlying price/unit. The July $22.50 GLOP put strike currently pays $1.30/unit, $.25 more than two quarterly distributions, for a breakeven of $21.20, which is below GLOP’s 52-week low of $21.20.

Our Cash Secured Puts Table can give you more details for this and over 30 other trades, all of which we update throughout each trading day.

Earnings:

Management did multiple dropdowns in 2017, adding vessels in Q1, Q2, and Q3. These are all young vessels, on long-term contracts with Shell, which expire from 2021 to 2026:

These new vessels pumped up GLOP’s quarterly earnings growth in 2017:

Q4 17 saw record numbers across the board for revenue, EBITDA, DCF, and adjusted profit. It also was the seventh straight quarter in which GLOP had record EBITDA and the third straight quarter of record revenues and adjusted profit. DCF also hit records in the last two quarters as the new vessels began contributing to earnings:

2017 was another good year for GLOP, with revenue up 26%, EBITDA up 32%, and DCF up 20%. Distributions/unit grew 6.6%, and management has guided to a 5-7% distribution growth target for 2018.

On 5/16/17, the subordination period of the subordinated units held by GasLog expired, and consequently, all 9,822,358 subordinated units converted into common units on a one-for-one basis and now participate pro rata with all other outstanding common units in distributions of available cash.

During the fourth quarter of 2017, GasLog Partners issued the size of its ATM Program and received payment for 385,520 common units at a weighted average price of $23.31 per common unit for total gross proceeds of $9M and net proceeds of $8.5M.

Management said on the Q4 ’17 earnings call:

“Our aftermarket common equity program has raised approximately $63 million since its inception in May 2017, primarily through reverse enquiry. These units have been issued at an average price of $22.97 per unit representing a discount of only 0.5% to the volume weighted average price.”

Risks:

GLOP’s business model is based upon long-term contracts, with strong counterparties, such as Shell. We note that Shell charters all of GLOP’s vessels, so there’s a heavy counterparty concentration there.

The near-term issue is that GLOP’s management has to re-contract three older vessels (25% of its fleet) in May, July, and September of 2018. Although spot rates have rebounded strongly and seem to keep climbing, management has previously stated that the new re-contract rates will probably be somewhat lower than the old rates, which will put some pressure on GLOP’s distributable cash flow.

On the earnings call, management said that they “would certainly hope that we are able to put one of the three ships away for a multi-year period and then have a bit of optionality on the other two.” One of these vessels, “the GasLog Sydney, is subject to an agreement with our parent to effectively guarantee the distributable cash flow from the vessel for up to one year after its charter ends in the fall.”

However, in Q4 ’17, spot rates climbed above their long-term average for the first time in three years, to $78K/day. If these higher spot rates persist, it would certainly put management in a better bargaining position:

(Source: GLOP site)

Drydockings – Management plans to refurbish two of these three vessels when they drydock in 2018 in order to improve their marketability and lower their unit freight cost.

Tailwinds:

LNG demand continued to have strong growth in 2017, with China up 45% and spot fixtures up 22%.

With the US Sabine Pass LNG project coming into its own in 2017 (it made 194 shipments) – LNG shipping tonnage miles have expanded, creating a better demand/supply balance for LNG vessels. This map details the various cargoes shipped from Sabine in 2017:

(Source: GLOP site)

LNG capacity grew by 11% in 2017, and 2018 should see a similar amount of new volume:

(Source: GLOP site)

Performance:

With all of this good news, you would think that Mr. Market would have set GLOP on a course straight for higher waters, but alas, this isn’t the case. Although GLOP outperformed the Guggenheim Shipping ETF (SEA) over the past year, it has trailed so far in 2018.

Analysts’ Targets:

At $23.70, GLOP is 13% below analysts’ average price target of $26.79 and 30% below the $30.00 highest price target.

Valuations:

GLOP’s valuations compare well to these other LNG shipping stocks, which we’ve covered in past articles, including Golar LNG Partners LP (GMLP), Dynagas LNG Partners LP (DLNG), and Hoegh LNG Partners LP (HMLP).

GLOP has the lowest price/book in this group, with an above-average coverage factor:

Financials:

ROA, ROE, and the operating margin have declined over the past four quarters, but the leverage ratios have improved.

GLOP has lower ROA, ROE, and operating margin figures than the rest of this group, but a lower debt/equity ratio. Its net debt/EBITDA figure is higher than average:

Debt and Liquidity:

Management raised $281.1 million in net equity proceeds and retired $153.8 million in total debt in 2017.

As of 12/31/17, it had $142.5 million of cash and cash equivalents, of which $101.3 million was held in current accounts and $41.2 million was held in time deposits.

As of 12/31/17, it had an aggregate of $1,155.6 million of indebtedness outstanding under its credit facilities, of which $103.8 million is repayable within one year. In addition, it had unused availability under its revolving credit facilities of $55.9 million.

GLOP has a $450M facility maturing in Q4 2019, which management should be able to refinance.

“In early January, (2018), we prepaid in full the $29.8 million junior tranche of the five vessel refinancing facility. Following this prepayments, all of our debt majorities through November 2019 will have been addressed. Over the course of 2017 and through January 2018, we have repaid $184 million of our debt, equivalent to 0.9x our 2017 EBITDA and more than our total cash distributions for 2017.” (Source: Q4 ’17 earnings call)

(Source: GLOP site)

Summary:

We rate GLOP a buy, based upon its continued strong growth, its attractive yield, and its strong distribution coverage.

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

Disclosure: I am/we are long GLOP, DLNG, GMLP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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