GasLog Partners' (GLOP) CEO Andy Orekar On Q4 2015 Results - Earnings Call Transcript

| About: GasLog Partners (GLOP)

GasLog Partners LP (NYSE:GLOP)

Q4 2015 Earnings Conference Call

January 28, 2016 8:30 AM ET

Executives

Samaan Aziz - Investor Relations Manager

Andy Orekar - CEO

Simon Crowe - CFO

Analysts

Chris Wetherbee - Citi

Spiro Dounis - UBS Securities

Noah Parquette - JP Morgan

Matthew Phillips - Clarksons Platou

Joe Nelson - Credit Suisse

Fotis Giannakoulis - Morgan Stanley

Operator

Good morning. My name is Shannon and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Partners Fourth Quarter 2015 Results Conference Call. All lines have been place to mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. As a reminder, this conference call is being recorded.

Today’s speakers are Andy Orekar, Chief Executive Officer; Simon Crowe, Chief Financial Officer and to commence the call, Samaan Aziz, Investor Relations Manager. Mr. Aziz, you may begin the conference.

Samaan Aziz

Good morning. Thank you for joining GasLog Partners’ Fourth Quarter 2015 Earnings Conference Call. For your convenience this call, webcast and presentation are available on the Investor Relations section of our website, www.gaslogmlp.com, where a replay will also be available. Please now turn to Slide 2 of the presentation.

Many of our remarks contain forward-looking statements. For factors that could cause actual results to differ materially from these forward-looking statements, please refer to our fourth quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these, are included in the appendix of this presentation.

I will now hand it over to Andy Orekar, CEO of GasLog Partners.

Andy Orekar

Thanks, Samaan. Good morning, and thanks everyone for joining GasLog Partners’ fourth quarter earnings call. I’ll begin today’s call with our highlights for the quarter, an overview of our fully contracted fleet and a review of our growth outlook.

Our CFO, Simon Crowe, will follow with a review of our financial performance and strong balance sheet. And I'll conclude with a review of our dropdown pipeline and an update on the LNG market, including a recent demand for shipping under long-term charters. Following our presentation, we'd be very happy to take any questions you may have.

On Slide 3, you can see our highlights for the fourth quarter. We achieved our highest ever performance for many financial metrics this quarter, including EBITDA and distributable cash flow. Following these results, we have declared a cash distribution for the quarter of $0.478 per unit or just over $1.91 on an annualized basis.

This distribution is unchanged from last quarter and 10% higher than the fourth quarter of 2014. At this distribution level, our coverage ratio is 1.43x, which is our highest quarterly coverage ratios since IPO and well above our 1.125x target.

During the quarter, we utilized excess cash flow to repay over $30 million of debt, including $15 million of our inter-company loan with GasLog Limited, which can be redrawn at anytime by the Partnership. This debt pay down is accretive to our distributable cash flow on a per unit basis.

Finally, we have made excellent progress in refinancing our 2016 debt maturities, and our refinancing using a new bank facility is fully underwritten and currently in syndication. We expect the refinancing to close in the first quarter.

Turning now to Slide 4. Over the last few months, we've seen continued weakness in the equity and commodity markets. In light of this, I wanted to spend a minute on our fleet and contract structure and why we believe GasLog Partners’ business model is different than most MLPs in the market today.

Our cash flows are generated by eight LNG carriers operating under long-term charters and our counterparty is a subsidiary of BG Group, an A-rated company with an approximately $50 billion market cap. Our charters are fixed-fee contracts, no commodity price exposure and generate revenue under daily rates. As such, GasLog Partners offers highly predictable and stable cash flows even during periods of low commodity prices. Importantly, our eight vessel fleet is fully financed and we have no capital commitments for vessel newbuildings or other commercial projects.

Turning now to Slide 5. In light of the current environment and uncertainty across the MLP sector, today, Simon and I wanted to make one thing very clear to our investors. Our distributable cash flow is stable and significantly higher than our cash distribution and we have substantial available liquidity.

Accordingly, we are firmly committed to paying our cash distribution. Since our IPO, we have demonstrated a track record of accretive growth for our unitholders, achieving an 18% compound annual growth rate in cash distribution. We have consistently outperformed the 10% to 15% CAGR target that we set for you at IPO. Despite our current yield and volatile market condition, we have the ability to pay and grow our distribution for several years to come, given our multi-year firm contract and lack of CapEx funding needs at the GasLog Partners level.

As you could see on this slide, we have grown our cash available for distribution by an even great amount, 28% since our IPO, including a 3% increase most recently in the fourth quarter. In light of this cash generation for our unitholders, we are retaining our 10% to 15% long-term growth target, but additional near-term distribution increases will be subject to investor preference for growth. As evidenced by our fourth quarter actions, GasLog Partners will continue to pursue our strategic and financial options to increase distributable cash flow on a per unit basis, including additional debt repayment and potential repurchases of our common units.

With that as introduction, I will turn it over to our CFO, Simon Crowe.

Simon Crowe

Thanks Andy. Good morning and afternoon to everyone. I'm pleased that today we are reporting another good quarter for the Partnership.

Turning to Slide 6, you can see that despite challenging LNG market, our firm charters and fully contracted fleet continued to generate stable adjusted EBITDA and distributable cash flow. Since our IPO, we have also delivered substantial growth in both metrics through the successful execution of our acquisition growth strategy. We’re very proud of this performance and the continued ability of our business model to deliver strong cash flows in current markets.

Turning to Slide 7. Since our IPO, we have grown distributable cash flow per unit by 46%, which represents a 28% CAGR. This strong performance has allowed us to maintain an increasingly conservative coverage ratio, while growing our cash distributions to unitholders. Our coverage ratio highlights our ability to consistently generate excess cash flow.

On Slide 8, you can see that since our IPO, we have grown our cash distribution per unit by 27.5%, which equates to an 18% CAGR. We are exceeding our 10% to 15% target CAGR set at IPO. Although we are committed to growing cash distributions to our unitholders over the long-term, this out-performance allows us the flexibility to continue to perform in line or above our growth target to several quarters more without the need for additional distribution growth.

On Slide 9, you can see that GasLog Partners has a solid financial position, with $75 million of liquidity and strong credit metrics. We paid down $30 million of debt in the fourth quarter and feel that paying down debt is an efficient way to lower leverage and increase distributable cash flow to unitholders.

Slide10. You can see that we've outperformed our target coverage ratio of 1.125x. For the fourth quarter, our coverage ratio was 1.43x and our cumulative coverage ratio since IPO is 1.24x. The out-performance in both periods is primarily due to operational efficiencies and other cost savings.

Turning now to Slide 11. Our strong coverage ratio allows us to comfortably pay our current distribution and generate excess cash flow, which can be used for accretive options including debt repayment. Our excess cash flow also creates the flexibility going forward for pursuing additional growth.

Turning now to Slide 12. You can see the GasLog Partners maturity profile. The refinancing of our 2016 debt maturity is fully underwritten in syndication and expected to close this quarter, and we expect the interest rate on the new loan to be consistent with our existing debt.

In conclusion and given feedback from our investors, in the near-term we plan to continue to grow distributable cash flow per unit and will increase our distribution based on investor preference for growth. However to be clear, we are fully committed to maintaining our current distribution, which is backed by firm fixed-fee contracts and substantial distribution coverage. Additionally, we are in a strong financial position with significant liquidity and solid credit metrics.

We have access to financing as evidenced by GasLog Limited’s recent $1.3 billion credit facility, GasLog Partners’ current refinancing, as well as financing offers we have received in the private market. We are confident that we will continue to perform and look forward to updating you.

With that, I'll now turn it back to Andy.

Andy Orekar

Thank you, Simon. Turning now to Slide 13. Today GasLog Partners own eight LNG carriers operating under multiyear contract. While our fully owned fleet has grown from three at our IPO, today we have the same number of visible dropdown candidates which are the 12 vessels you can see in the middle panel of this slide. This substantial pipeline is the result of our parent, GasLog Limited, adding additional vessels under long-term charters that grips fleet, providing GasLog Partners with visible growth for multiple years to come.

Our pipeline of 12 vessels represents well in excess of $200 million in annual EBITDA and has an average remaining charter length of eight years. GasLog Partners has right to acquire all of these vessels, but we will only do so in a manner that is accretive on a distributable cash flow per unit basis.

Please turn to Slide 14. I'd like to spend a moment on the LNG market and a recent momentum we have seen at many of the advanced liquefaction projects in the U.S. and Australia. In 2016, we expect 40 million tons of new liquefaction capacity to come on line. The infrastructure for these projects is now largely been completed and the majority of the LNG volumes are being produced by these projects has already even full.

Despite the recent delays at Sabine Pass, which is one of the five significant U.S. projects under construction, it’s expected to export its first cargo later this year. When construction is completed, Sabine will be one of the largest liquefaction projects in the world with a total export capacity of 22.5 million ton and will be the first U.S. project to export LNG into the local markets.

The U.S. becoming an exporter of LNG is a welcome development for the shipping sector as it creates new suppliers, new customers and new trade group. The majority of U.S. volumes have already been contracted with most expected to go into the Asian and European markets.

Turning now to Slide 15. With this significant wave of new LNG production coming on line, we are seeing encouraging levels of tendering activity for LNG carriers. Relative to the current order book, we continue to see a future shortfall of vessels that were acquired for the projects that have taken financial - final investment decision and are currently under construction.

As you can see on this slide, there are a number of current tenders in the market totaling requirement of 20 to 26 ships from a range of different charters. In 2016 alone, we expect further tenders for 20 to 30 more ships incremental to those shown here.

Turning to Slide 16. Four brief comments to conclude today. As an MLP created to distributed cash to its unitholders, GasLog Pattners is firmly committed to our distribution and we have the ability to maintain and grow such distribution for several years to come, due to our visible cash flows, conservative coverage ratio and zero CapEx commitment.

We have a strong balance sheet with substantial liquidity and the refinancing of our near-term debt is fully underwritten and expected to close in the first quarter of 2016. We have established a track record of growth since our IPO and remain committed to accretively growing our distributable cash flow on a per unit basis.

And lastly, we believe that increased LNG supply from high probability projects will drive strong demand for shipping under long-term charters and GasLog Partners is well positioned to benefit from this trend.

That brings us to the end of our presentation. Operator, could you please open the call for any questions?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Chris Wetherbee with Citi. You may begin.

Chris Wetherbee

Hey, thanks for taking the question guys.

Andy Orekar

Hi Chris.

Simon Crowe

Hi Chris.

Chris Wetherbee

So I want to talk about the distribution and sort of your thoughts here. I know you're looking for investor feedback, but when you think about balancing sort of the ability to may be self-fund the business a little bit with a slower distribution growth profile versus may be sort of more traditional approach of dropdowns being funded by equity, which is obviously very challenging in this market, but sort of - or maybe front-end loading some distribution growth now that your coverage ratio has gotten higher, how do you think about that? I guess that's a big sort of turning point for the company to some extent. Just want to get a sense of your thoughts there?

Andy Orekar

Sure. Well, I think as you correctly noted from our comments where we could grow the distribution further today and you can see in the financials, we certainly have the capacity to do that. I think we are electing not to because the market does not appear to be valuing incremental growth at this time. And so what we've chosen to prioritize in the first instance is paying down debt, creating more balance sheet capacity for this period, and if this period continues for a long period of time having the best possible balance sheet to take advantage of that.

And whether that ends up being cash that sits on the balance sheet, it can fund an opportunistic vessel acquisition or just gives us that much more headroom for new debt when we feel like there is the right opportunity, we'll evaluate that as it comes. But I think today, again as an MLP, we feel the contract we have with our investors to distribute the cash we’ve generated and feel very capable of doing so for several years to come.

Chris Wetherbee

Okay. I guess I'm sort of sensing slightly mixed messages. So you have the cash, but I guess you're holding off on raising the distribution because you don't think the market values it but you feel like there is a desire to get that cash back out. If I were to think about 2016 in a scenario that we are in right now, do you think it's a kind of dynamic that you would hold on to the cash, you pay down debt to try to fund the dropdown maybe mid-year or so? I guess, I'm trying to understand what the growth profile both the fleet and the distributions look like in 2016 under the current environment, if nothing really changes from today?

Andy Orekar

Sure. Well, I think we have, as you know, and I don't see us raising common equity anytime soon at these levels. And so I think we have both the ability to in part self-fund additional fleet growth and I think we also have other alternative equity sources that could be attractive relative to the cash flow streams we feel like we can acquire. So I think we are - when we received feedback that our investors would like this excess cash distributed to them, we are very happy to act on that but certainly I speaking as the shareholder would feel that way.

But again I think now we are at a 16% yield or whatever we're offering, we are offering a very compelling total return at the moment which we think will service well as we continue to pay the distribution and that has the financial capacity when growth is rewarded again to continue growing it, both through fleet growth as well as through running at a lower coverage ratio.

Chris Wetherbee

Okay. That’s helpful. And in terms of fleet growth, there is still an expectation that we will see fleet growth in 2016. Is that a fair statement?

Andy Orekar

I think it depends on the sort of economics of where we feel like we can fund with both internally generating capital and capital outside the common units. Again we feel it's available to us. But we are only going to do it if we feel it really is accretive to our common unitholders. So it's something we are actively studying, but we want to make the decision at the right time based on the price of that capital in front of us.

Chris Wetherbee

Okay. That’s helpful. If you’ll indulge me, just one question on the market.

Andy Orekar

Sure.

Chris Wetherbee

Go ahead, sorry.

Andy Orekar

Please go ahead.

Chris Wetherbee

Okay. In terms of the tender activity relative to the order book in sort of the available vessels for charter in the spot market are sort of the underutilized market today, how do you think about sort of tightening capacity or maybe when do you think about tightening capacity as you look out in 2016? It feels like something that we shouldn't be expecting in the near future, I guess, I just want to get a rough sense of may be how you guys think about the cadence of a potential improving market in 2016?

Andy Orekar

Sure. So I guess just - Chris, I know you know it’s been for the benefit of the call, I think as you know we’re all of GasLog Partnerships are under long-term charters, so the spot rate on a given week does not affect our P&L, but it's important something that we pay attention to. And I think there is number of events that I think are giving us confidence about the momentum in the market. I think clearly rates have bottomed and we are hoping for a recovery. I think some of the events including just recently this week, the recommissioning of the Angola project which we've been talking about with our investors for some time now, you have roughly seven, eight ships there that were chartered to the project that have come back into the spot market with the project down for repair [ph]. And so with Chevron making good progress there, and hopefully getting those ships back on to the project soon. We think that's a helpful mile marker, if you will.

We have seen some AP LNG cargoes heading to Mexico on the Pacific side, which might be an interesting example of some of these Australian volumes going longer distances and were first in divisions and instead of the trade to Asia coming to Europe or as far away as Mexico is incredibly positive for ton mile demand. So I think there is a handful of other projects, Gorgon starting up, and with Chevron having a ship alongside there in recent weeks, that's a good sign. So again these are sort of straws in the wind that we hope will lead to a tightening in rates, and I think are all positives we've been expecting for a long time but we are finally getting to see them as reality.

Chris Wetherbee

Okay. That’s helpful. Thanks.

Simon Crowe

Chris, if I can just add to that. I mean the cool pool as well I think is really helping us in terms of seeing opportunities and also reducing our OpEx, and it's very well positioning us now to meet the response to more gaps in the market. So as Andy says, we've got Australia Pacific, Gorgon, Sabine potentially a bit later, Gorgon, these are all coming on to market. This is new supply and we haven't seen any real significant new supply for many years. So as Andy said straws in the wind but very encouraging at this point and we remain opportunistically able to take advantage of that.

Chris Wetherbee

Yes, that certainly makes sense. Thanks very much for the time guys. Appreciate it.

Operator

Thank you. Our next question is from Spiro Dounis with UBS Securities. You may begin.

Spiro Dounis

Hi Andy and Simon. How are you?

Andy Orekar

Good. Thanks Spiro.

Spiro Dounis

Good. Just want to pick up on, I guess, the fleet growth you mentioned earlier. It sounds like in the short-term you’re sort of augmenting the strategy to meet where the market is headed that long-term, nothing has changed. And I guess in that vein, maybe how you're thinking about dropdown multiples in this market, and I realized the contracts on these vessels are the same, the vessel themselves are the same, but obviously cost to capital these days is much higher. How are you thinking about that in that context?

Andy Orekar

Sure. Spiro, it’s Andy speaking. I think, I guess, I would say first it’s the risk of saying in the obvious every dropdown multiple is a us a goodness negotiation between GasLog Partners and GasLog Limited as we are different companies. And so I can only speak from the GasLog Partners perspective. But I think we’re not - we are very much aware of where our equity is valued in the market today and pick whatever valuation metric you like we feel like we are undervalued and that would suggest that we need to be mindful of that in any dropdown scenario.

And so I think in our mind it's where I can we buy assets that really generate value for our common unitholders. And I think we have financing alternatives that help basically solve that equation. So without being too specific about a specific ship or cash flow stream, we think we've got capital available to us in a sort of blended cost of capital that’s still very attractive at what I call reasonable dropdown multiples. So we think the model still works quite well and doesn't need to rely on common units for additional growth right now.

Spiro Dounis

Got it. And then…

Simon Crowe

Yes, and then…

Spiro Dounis

Go ahead.

Simon Crowe

Just sort of add to that. Speak from GLOG and GLOP perspective. I mean we've always been very transparent. We've done fair deals with both entities as Andy says. It is an honest negotiation. They've always been very straight forward deals. They've been well benchmarked in the market. GLOG and GLOP are in good shape. But as Andy says we’ve got alternative sources of capital. We’ll look to see and optimize that. It’s got to be accretive. It’s got to be the right transaction for GLOP and for GLOG and what’s good for all is good for the other. So it’s a very transparent, very fair and we’ve got a track record of doing that and doing - being fair to the GLOP unitholders and the GLOG shareholders and that’s very key that we maintain that integrity and we maintain that transparency.

Spiro Dounis

Yes, fair enough. And then maybe just staying on this topic, I wouldn't ask you to take anything off the table, but some of your peers have sort of done this 50% dropdown type strategy where well maybe you don't have to put out as much capital but you get some sort of growth and it allows you to take more of an all-of-the-above approach and that you can may be use some more of that capital, do share buybacks like you mention. Just wondering if that’s something you’d even consider?

Andy Orekar

Spiro, again it’s Andy. Absolutely, I think we would consider whether it's for an LNG carrier currently in the fleet or a new project, something that’s partial ownership as long as we’re getting our equitable share of the cash flow works very well from the GasLog Partners’ perspective and again we think we have some additional alternatives that throughout the course of the year may fit that in some way. So I think it’s absolutely is something we would keep on the table and something we feel like with that additional coverage ratio we have, we have the ability to pursue fleet growth, not just necessarily in whole ships or several ships at a time as we’ve done in the past, but in potentially additional investment, additional transaction styles from what you’ve seen from us previously. So absolutely something is on the table from my perspective.

Simon Crowe

And then the good thing is we’ve got a very good pipeline up at GasLog Limited of ships, 12 ships that potentially available over multiyear with multiyear charters. So they are very good pipeline of growth. And as Andy said, we’re open and we’re now analyzing all different sorts of options to ensure that that growth continues. So yes, we are in pretty good shape, and of course we've got no CapEx commitments down at GasLog Partners. We’re in a very good position where we don’t have to do. I think we’re not forced to do things, we do the right thing, we do the accretive thing, we do the things that makes sense for the unitholders and for GasLog Limited shareholders.

Spiro Dounis

Yes, that’s good color. Just last really quick one on the refinancing. I realize you might have keep comments limited, you’re sort of in the middle of the process. But we keep hearing capital markets are largely close and refinancing right now maybe the terms aren’t as attractive as they used to be. Just wondering how the process went for you? Did you run up against any of that or was it business as usual?

Simon Crowe

I’ll take that one, Andy, if I may. It was business as usual. I mean we’ve got a very supportive group of lenders. So the refinancing has gone very well. The syndication is down to almost the last. We’re underwritten, so actually very well. But no, I’ve been very pleased with the opportunity to access capital both from the bank markets and other sources of capital, private sources of capital are still very much there for the good names and the quality names and obviously I made no bones about it, I think GasLog is in that category. So no, it’s business as usual very much. The terms, the conditions are very much as we expected and really pleased with the progress.

Spiro Dounis

Great. I appreciate the color. Thanks guys.

Andy Orekar

Thanks Spiro.

Simon Crowe

Thank you, Spiro.

Operator

Thank you. Our next question is from Noah Parquette with JP Morgan. You may begin.

Noah Parquette

Thanks. I just wanted to follow-up on the decision to repay debt when you talk about the options you have between the debt retirement or repurchasing shares or even acquiring vessels. I mean, how easy of a decision was it in your mind to repurchase debt versus where your stock is trading now? I mean was it tough, was it a no-brainer, just kind of let me get a sense of how much farther the stock has to fall for that how it goes just.

Andy Orekar

Hi Noah, it’s Andy speaking. I think in our mind we have a high class problem in generating excess cash over our distribution and really in the first instance and I think some of the questions today reflected are first of all was to repay debt and have as much balance sheet capacity as possible, because we thought that was a prudent first step to take. And by sort of doing, you’ve created the opportunity where you can repurchase shares but not actually be simultaneously increasing leverage because in my mind those two actions go hand in hand. So in our mind, there is several applications for the excess cash. We’re committed to the distribution and absolutely looking at unit purchase is on the table but I think, we, in the first instance show this prioritize debt repayment.

Noah Parquette

Okay. That makes a lot of sense. And then, how comfortable are you with increasing leverage here to acquire ships without distributing equity. You sort of - what do you estimate your firepower is maybe using alternative sources of capital?

Andy Orekar

I think we have the ability and by repaying debt, particularly debt that we can reborrow, we’re creating that dry powder. Our sense is simply by continuing to perform and executing in the way that we feel we can and we’ll continue to differentiate ourselves and we’ll be well positioned for opportunistic acquisition opportunities. At the same time, we want to take our investors guidance on the desire for more fleet growth at this time and raising significant amount of capital on what is clearly a volatile market. So I think we have the good portion of being able to be patient given where we’re performing against our growth target, but we think we’re getting the balance sheet better and in a better position to act when fleet growth really rewarded again by the market.

Noah Parquette

Okay. That makes sense. And then just a market question. I guess, how important - the spot market is what it is, it’s not very good, but there still seems to be decent amount of long-term charters being agreed upon. How important is the spot market, a recovery in the spot market to increasing maybe the healthiness of the LNG carrier market? Is it even an issue I guess?

Andy Orekar

Yes. They really - I think as people have heard us say many times, they really are two different markets. So much of the term requirements are for people who are buying gas and that very clear volume requirements over many, many years, whereas the spot markets, as you know is much more shorter term in nature in taking advantage of base and differentials. So the two are distinct in many ways and of course that the term market is the vast majority of the carrier market today and it has been for a long time.

So they really are different sets of customers in large parts. And as you know, that the term market, in fact I would say in many ways we’re seeing more interest from a much broader range of charters. It’s not just the energy majors although it’s them as well, but it’s a much wider group who are looking for shipping under long-term charter. But just by sheer activity levels it’s frankly as healthy as it’s ever been even though the spot market remains weak.

Noah Parquette

Okay. All right, thanks. Thanks for the time.

Simon Crowe

Yes, I think that - sorry, just to add, the spot market drives a bit of sentiment and that’s important in the overall industry. It also drives some of the sentiment in the term market but I think we expect the spot market to recover. We think that’s good that the spot market has been low and have kept people out, has kept people from ordering. I think there was only one order last quarter and it was a small ship. So it’s kept sort of barriers to entry quite high which I think gets extremely well for very tight market in the next few years. So we’ll wait and see, but spot - we’re very active in the spot. And as Andy said, it’s there almost but it’s at highest level ever in terms of number of spot contracts and cargos done. So we are well positioned for that at GasLog limited but of course just to remind you GasLog Partners has no spot exposure. It’s all long-term cash flow.

Noah Parquette

Yes. And I guess just a follow-up to that, all the tenders that are out there, in the discussions do the charters even bring out the possibility of taking some of these ships that are on the spot market or is it not even part of the discussion? I mean, is it mostly about newbuilds or newer ships?

Andy Orekar

We have - we’re in some active discussions around ships that we have that are operating in the spot market and some of those themselves are on, if not long-term, but certainly multi-month charters and so it is part of the dialog for sure in addition to newbuilds that we have that we are the industry have in construction.

Noah Parquette

Okay. All right, thanks again.

Andy Orekar

Thanks Noah.

Simon Crowe

Thank you.

Operator

Thank you. Our next question is from Matthew Phillips with Clarksons Platou. You may begin.

Matthew Phillips

Good morning guys.

Andy Orekar

Good morning, Matt.

Matthew Phillips

So sort of given where rates are compared to your contract levels, spot being below term rates, is there any pressure at all on for counterparties to renegotiate contracts here or is that not even on the table?

Andy Orekar

Hi Matt, it’s Andy speaking. No, we haven't seen any of that. I think these are very reputable, certainly the counterparties at GasLog and GasLog Limited have are very reputable multi, multibillion dollar companies with great credit ratings and they pay their bills and have been great customers of ours for many years. So we have not - we haven't seen any of that.

Matthew Phillips

Got you. Yes, I figured it’s worth asking in this environment. It’s certainly our client base is very focused on what is the downside from all these companies and that could clearly be one of them, but it doesn’t seem likely. Broader question, LNG demand was actually down a bit in ‘15. In one of your recent presentations you had expectation of 10% gas penetration into China as driving global or future LNG demand. What sort of signpost should we expect to see to see that occur? Is it as simple as just having more of the Aussie projects online? What sort of other things should we be looking at to see global demand growing at a steady clip?

Andy Orekar

Sure. I mean I think it's best, yes it’s hard work, if you’ve got to go project by project in some far off corner of the world. But I think it’s really in our mind, if you look at the growth in the FSRU market, things like Pakistan wanting a second FSRU operational by mid-2017 which is quite a quick timeline in the FSRU world. India looking for an FSRU with five million tons of capacity, they can expand to 10 within three years. There has been a number of these. Last year you saw Egypt, Jordan. And so these, kind of what we like to call it sort of collective FSRU demand thing which could add up to all projects that are on the board come to fruition 50 million to 100 million tons of demand from just frankly new gas markets in many ways.

So in our mind, of course Japan, South Korea, China will always be very fundamental to LNG demand, but there is sort of FSRU phenomenon is leading to a very significant, and I think quickly growing increase in demand for LNG in places where gas is just never reached by pipeline. So I think if you continue to see that drumbeat in FSRU demand rollout, in our mind, that’s a very good sign.

Simon Crowe

Yes, and Andy if I could just add to that. I mean sort of as you say FSRU are probably increasingly important but the sort of three areas we think about is India, China sort of switching out of call and I think that’s increasingly going to happen. Europe has got a sort of Russian gas risk which it likes to mitigate against and Asia and Latin America or the rest of Asia, Latin America has got growth and an opportunity to - we’re seeing increasing cargos go in there. So as Andy says you’ve got to go project by project, country by country, but there is a lot of cheap gas coming onto the market and we strongly believe there will be a big demand for that gas.

Matthew Phillips

Got you. Thanks guys. Following up on the FSRU comments, I mean that’s a space you all have expressed interest in the past. In this environment - and we think it’s still attractive, but how would you finance something like that in this environment? Would it be at the GP level or one of the private entities and kind of a bridge to when you can publicly finance that? How do you all look at that space?

Andy Orekar

Well, I think it’s - as you correctly noted, Matt, it’s something we’ve been following closely and we believe that our ships are very logical conversion candidates for FSRU. And so it’s something that we’ve been spending time on including getting fleet studies for certain vessels. I think as you also correctly pointed out, we’re very sensitive to our current cost of capital. And so whether it’s an FSRU or an LNG carrier or any other cash flow stream, we’re definitely very mindful of where we can price the capital relative to the return of the project. And so I think our view is to continue to develop that as publicly most likely in event that would be first house at the GasLog Limited level, just given our model of housing investment there and total cash flows can be harvested down to GasLog Partners.

But again I think it’s still early stages for us and we’re clear that the returns need to be sufficiently above our cost of capital to really commit new dollars to it.

Matthew Phillips

But when you say conversion, I mean, do you mean at the GLOP level, like say one of the steam vessels coming off in ‘19. How would you manage it being offline for say a year, like with that you would maintain excess coverage heading into that or you would not even consider doing something at the MLP level?

Andy Orekar

No, I think we would. I think the way we would structure it, Matt, is that if we still have ships up at the parent that are in the spot market, we would seek to swap out a ship that’s on charter with the same counterparty while the - let's say the 145 steam was being converted down at GLOP. So there would be no hiccup in distribution cash flow and we would have the ability to do that given some of our strong customer relationships. But it would be, as you correctly know, we wouldn’t take a ship off charter or out of service to convert to an FSRU at the MLP level.

Simon Crowe

We don’t want to disrupt the cash flow at the Partnership that’s the key but we do see opportunities for conversion.

Matthew Phillips

Okay, great. That’s helpful. Thanks guys.

Andy Orekar

Thanks Matt.

Operator

Thank you. [Operator Instructions] Our next question is from Gregory Lewis with Credit Suisse. You may begin.

Joe Nelson

Good morning guys. This is Joe Nelson on for Gregory Lewis this morning. Just maybe a quick high level one from me, if you can. You mentioned the 40 million tons of projects coming on line between Australia and U.S. this year. Do you have any - baked into that estimate, do you have any project push-outs basked in there or is this sort of kind of what’s out there right now?

Andy Orekar

So that’s really based on - Joe, it’s Andy speaking. That’s really based on the sort of visible group that we’ve highlighted, so Sabine, AP LNG, Gorgon, the ramp up of the Queensland Curtis project, the ramp up of Gladstone. And so getting those - the volumes again that have been long signals but are now just coming to fruition despite some recent short-term delays here with Sabine Pass.

Joe Nelson

Okay, great. That does it for me guys. Thank you very much for your time.

Andy Orekar

Thanks.

Simon Crowe

Thank you.

Operator

Thank you. Our next question is from Fotis Giannakoulis with Morgan Stanley. You may begin.

Fotis Giannakoulis

Yes, hi guys, and thank you. Andrew and Simon, I just wondering of ramp thousands of scenarios for the re-chartering of your vessels. I know that you have no re-chartering risk at least until 2018, which seems to have very far away and probably a very different LNG shipping market, but I wanted to understand at what level you can re-charter your three vessel that come off contracts in 2018, and even beyond that maintain your current dividend distribution assuming no other acquisitions?

Andy Orekar

Sure. Hi Fortis, it’s Andy. As I said in our prepared remarks, we feel very confident about being able to maintain this distribution and grow it with from these levels. And I think if you - the thousands of scenarios you mentioned but even if you were to take a look at the current spot rates and run them through our fleet in 2018 with the coverage that we have, with the balance sheet that we have, again we feel very confident about the distribution. So again, I don’t want to give you year-by-year guidance but we just based on that, that one example you mentioned, we feel very confident for several years to come.

Fotis Giannakoulis

So that means that even with 60% or 70% lower rates for this three vessels, you can still pay your dividend? Can I take that as a…

Andy Orekar

Yes, and I think that the cash flow is probably in your model as well supports that.

Fotis Giannakoulis

Okay, thank you. And a little bit more of a strategic question of the group. Your stock is trading at very high yield despite the fact that accumulation is so strong. I am trying to understand what are the thoughts of your parent, and if your parent has any second thought about the GLOP vehicle, and there are any thoughts of potentially, buying it back and rolling it over given the fact that it seems so massively undervalued.

Andy Orekar

Sure. Well again, Fortis, it’s Andy. I think as you know but for the benefit of others, I work only for GasLog Partners and so I really can't comment on what the parent or GasLog Limited is thinking. What I would say is that this is a time where the facts really matter in MLPs and there is a number of business models that probably don’t make sense for the GP/LP structure. We believe this one does. We think that the charters and the asset values that we have supported, we think the balance sheet and the lack of capital requirements supports this. And so I fully expect that this will be a differentiated MLP as results play out over the next several quarters and the real strength of certain business models reveal themselves and we think we’re in the absolute top quartile of that analysis among MLP. So we have every reason to think this will be a thriving and growing MLP for many years to come.

Fotis Giannakoulis

Thank you very much, Andy. That’s all from me.

Operator

Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to Mr. Orekar for closing remarks.

Andy Orekar

So thank you everyone for joining us for our fourth quarter call. We appreciate all of our unitholders support and look forward to speaking to you again next quarter. Thank you.

Simon Crowe

Thank you.

Operator

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day.

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