GasLog Partners' (GLOP) CEO Andy Orekar On Q4 2016 Results - Earnings Call Transcript

Jan. 27, 2017 2:06 PM ETGasLog Partners LP (GLOP)
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GasLog Partners LP (NYSE:GLOP) Q4 2016 Results Earnings Conference Call January 27, 2017 8:30 AM ET

Executives

Andy Orekar - CEO

Simon Crowe - CFO

Samaan Aziz - IR, Manager

Analysts

Chris Wetherbee - Citi

Jon Chappell - Evercore ISI

Noah Parquette - JP Morgan

Ben Nolan - Stifel

Spiro Dounis - UBS Securities

Michael Webber - Wells Fargo

Joe Nelson - Credit Suisse

Ben Friedman - Morgan Stanley

Presentation

Operator

Good morning. My name is Liz and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Partners Fourth Quarter 2016 Results Conference Call. All lines have been placed on 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 your conference.

Samaan Aziz

Good morning. And thank you for joining GasLog Partners’ fourth quarter 2016 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 two of the presentation. Many of 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 is included in the appendix of this presentation.

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

Andy Orekar

Thank you, Samaan. Good morning and thanks to everyone for joining GasLog Partners’ fourth quarter earnings call. I’ll begin today’s call with our highlights for the quarter and an overview of our recent dropdown acquisition. Our CFO, Simon Crowe, will follow with a review of our financial performance, and I’ll conclude with an update on the LNG shipping market and our distribution growth outlook. Following our presentation, we’d be very happy to take any questions you may have.

Turning to slide three, you can see our highlights since we spoke with you last quarter. Today, we expect to complete a follow-on common equity offering, raising total net proceeds of $77 million. The offering was met with strong demand from new and existing institutional investors and provides us with liquidity to fund another vessel acquisition in the first half of 2017.

During the fourth quarter, we closed our acquisition of the GasLog Seattle, and on the back of this fleet growth, I’m pleased to report today we increased our fourth quarter distribution by 3% to $0.49 or $1.96 on annualized basis. This distribution increase is primarily due to GasLog Seattle’s accretive contribution to our fourth quarter results.

As we completed this acquisition only midway through the quarter, Q1 will be GasLog Seattle’s first full quarter contribution to the Partnership. Accordingly, we plan to recommend to our Board an additional increase to approximately $0.50 per unit for Q1 2017, which would represent a 5% total distribution increase following the dropdown.

Lastly, I’m delighted to report that in Q4, we achieved our highest-ever quarterly results for EBITDA and distributable cash flow, among other metrics, and our distribution coverage ratio remains conservative.

Turning to slide four and more details on our recent acquisition. GasLog Seattle is a 155,000 cubic meter LNG carrier with tri-fuel diesel electric propulsion. This moderate and strategically attractive vessel was built in 2013 and has been operated by our parent, GasLog Limited, since its delivery. She is currently on charter with Shell through December 2020 and Shell has two five-year extension options. The Seattle is youngest vessel in our fleet, extends our average remaining charter duration and is forecast to generate $20 million in EBITDA and $10 million in distributable cash flow per annum. With the net purchase price of $188 million, the vessel was acquired at 9.4 times multiple of EBITDA and financed the proceeds from our August 2016 equity offering, plus the assumption of the vessel’s existing debt.

With that introduction, I’ll now turn it over to Simon to take you through our financials.

Simon Crowe

Thanks, Andy, and good morning and afternoon to everyone. I am very pleased to report our highest-ever quarterly results today. Please now turn to slide five of the presentation.

We had significant increases in revenue, EBITDA and distributable cash flow. This performance was primarily due to the acquisition of the GasLog Seattle and operational cost savings. We expect further revenue, EBITDA and distributable cash flow growth next quarter due to GasLog Seattle’s full quarter contribution. As such, for the first quarter 2017, we plan to increase our cash distribution per unit from $1.96 to approximately $2 per unit on an annualized basis.

Please turn now to slide six.

Looking back at 2016, we achieve strong year-over-year growth, despite significant energy and MLP market volatility. This performance highlights the durability of our cash flows and ability to execute acquisitions, despite market conditions. We expect 2017 to be another successful year as our substantial liquidity and dropdown pipeline provide significant visibility for growth.

Turning now to slide seven.

You can see that we continued to outperform our target coverage ratio. Our coverage ratio for the fourth quarter was 1.2 times, and this includes the units issued in our equity offering this week, which will receive our Q4 distribution. Next quarter, we would expect our coverage ratio to remain around the same level.

Turning now to slide eight.

You can see that following equity offering, GasLog Partners has cash of approximately $120 million and a strong balance sheet. We’re committed to our growth targeted of 10% to 15% CAGR since IPO, and we are well-positioned to finance additional growth and meet our guidance in 2017.

As noted in our press release in November, the Partnership entered into interest swap agreement at a notional aggregate value of $390 million. As a result, the partnership has hedged approximately 50% of its floating rate exposure. We executed these agreements in anticipation of higher rates, and we achieved $4.2 million gain in the fourth quarter as rates moved higher.

In summary, this has been a record quarter for GasLog Partners, and I’m pleased that following the announcement of my planned departure later this year, I’m leaving the Company in great shape. And thanks to all of you who have supported over the past few years, and I know that the Company will go from strength to strength.

And with that, I will turn it back to Andy.

Andy Orekar

Thank you, Simon. Turning now to slide nine and an update on the market for LNG supply. This slide shows [the] nearly 150 million tons per annum of new liquefaction that has already taken final investment decision and is scheduled to come on line through 2020.

We would note that every large scale project that was due to come on line in 2016, started up as planned and is now producing. These new sources of LNG supply should increase demand for shipping, and we continue to see tenders for long-term charters of vessels needed to transport volumes from these facilities.

On the demand side, in 2016, we saw a 9% year-over-year increase in global LNG imports. China and India were the two primary drivers of this increase with China’s import increasing over 30% and India’s 29%. We’ve also seen several promising FSRU developments with seven new contracts awarded in 2016, demonstrating the growing demand for offshore re-gasification.

Turning to slide 10 and a few comments on LNG shipping demand. This slides show Wood Mackenzie’s analysis of outstanding shipping requirement for projects that have already taken FID. The table shows that many projects or offtakers, still need to secure shipping from these volumes, including large U.S. projects such as Cameroon, Freeport and Corpus Christi. In total, Wood Mackenzie estimates approximately 50 additional vessels will be needed.

Based on the expected new volumes and projected available tonnage, the shipping market should tighten significantly from today, as the growth in vessel demand is expected to exceed the growth in vessel supply. Given significant increase in LNG listings expected through yearend 2019, we feel confident there will be strong demand for our vessels with firm charters ending in 2018 and 2019.

Turning now to slide 11 and our distribution track record. On the left hand panel, you can see that we’ve now grown our distributable cash flow per unit at a 13% compound annual rate since IPO. This strong growth in cash flow is due to our consistent operating performance with virtually 100% uptime across the fleet. Successful dropdown acquisition, continued OpEx efficiencies and meaningful debt repayment, such growth in cash flow has enabled us to continually meet our guidance and increase our distributions paid at a compound annual rate of 11% since IPO with a cumulative coverage ratio in excess of our 1.125 times target.

Turning to slide 12. As we look ahead to 2017, GasLog Partners dropdown pipeline provides significant visibility for growth. The Partnership has right to acquire 13 modern LNG carriers, representing $270 million in total annual EBITDA.

In 2016, our GP sponsor GasLog Limited continued to add attractive long-term charters with highly credit worthy counterparties such as Total and Centrica. These new charters increase the scale and diversity of our dropdown pipeline even as we add vessels up to GasLog Partners level. And we expect that our next dropdown acquisition will target one of the TFDE vessels you see on the slide, carrying a firm charter through 2023 or later.

Turning to slide 13, and our distribution growth outlook. As mentioned earlier in the call, on the left hand panel, you can see that following the first full quarter contribution of the Seattle in Q1, we expect to grow our quarterly distribution approximately $0.50 per unit or $2 on an annualized basis. This represents 5% growth over our third quarter and an 11% compound annual increase since our IPO, which is very much in line with our growth guidance. Those who follow consistently know that we have consistently targeted 10% to 15% CAGR in distribution since our IPO three years ago and we met this guidance in every quarter as a public partnership. We continue to believe this guidance is achievable and are targeting a minimum 10% CAGR to achieve for, which will result in a distribution of $2.09 or higher by year’s end.

With the proceeds raised from our recent equity offering, we have sufficient liquidity today to execute another dropdown in the first half of 2017. Such acquisition would support increasing our distribution above the $2 level and enable us to reach our minimum 10% CAGR target. In addition to common equity, we also believe we have access to alternative financing sources including preferred and private capital that could support further growth objectives.

Turning to slide 14. In summary, for the fourth quarter GasLog Partners continues to execute on our growth strategy. We’ve delivered our highest-ever quarterly financial results following the acquisition of the GasLog Seattle. We’ve increased our cash distribution by 3% for the fourth quarter and expect to increase another 2% in Q1 for a total of 5% growth over our third quarter. With the proceeds in hand from this week’s equity offering and a 13-vessel dropdown pipeline, we are well-positioned to meet our target 10% to 15% compound annual growth and cash distribution for 2017.

And finally, looking longer term, continued progress of new liquefaction supports the positive demand outlook for LNG shipping under long-term charters, and our GP sponsor continues to execute on several commercial opportunities that would add further vessels to our pipeline.

That brings us to the end of today’s presentation. Before we turn to Q&A, I wanted to take a minute and thank Simon Crowe for his support and partnership as our CFO. We at GasLog Partners have accomplished a great deal since our IPO in large part with Simon’s efforts. His enthusiasm for our business will be missed. But Simon leaves GasLog Partners from position of strength and I’m confident that he will bring his many talents and expertise to his next endeavor.

Operator, could you please now open the call for any questions we may have?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from line of Chris Wetherbee with Citi. Your line is now open.

Chris Wetherbee

Great, thanks. Good morning, guys.

Andy Orekar

Hi Chris.

Chris Wetherbee

I wanted to ask I guess about sort of distribution coverage and then ultimately sort of the trajectory. So, you guys are doing great job maintaining sort of the CAGR of distribution growth that you’ve talked about. Your coverage is getting -- the spread of your coverage versus what the target is, 1.125 is getting a bit lighter here. How do we think about sort of the next year or two? Is that spread that sort of surplus of coverage a tool that you might think about using as you kind of get bigger, the large numbers start, the catch-ups with the dropdowns, don’t contribute as much as in each one from a percentage basis, you start to get into that to maintain the 10%. I guess, I’m trying to get a sense of sort of the strategy around it, if there is potential upside in that 10% CAGR in 2017 or is something we should wait for down the road?

Andy Orekar

Sure. Chris, this is Andy speaking. Good question. I guess, I would describe it in two parts. Really 2016 was a year where we felt the prudent thing to do was maintain our distribution. As you know, we probably could have grown it, but we’re in an environment where we didn’t feel like we were getting much value for the distribution we were paying. So, growing it, didn’t make much sense. And I think as you say, as our fleet gets bigger and our 9 vessels, on its way to 10 and obviously many more to go that those -- that percentage of coverage ratio translates to more dollars. And so, you’re absolutely right, it could be more effective in the future.

I think today, we’re still -- it feels like, based on our investor conversations, we’re still in a market that is finding its footing between conservatism on the distribution and a reorientation towards the growth. And so, I guess what I would say is to the extent we feel that paying a slightly lower distribution coverage, i.e. paying more on the distribution with the same asset base will translate directly to more value in our unit price, we are certainly open minded to it. But I think given recent history and I think at this moment, I think we are still likely to air on the side being conservative.

Chris Wetherbee

Okay. That certainly makes sense, I can appreciate that. I guess you mentioned the vessels coming up in 2018. We haven’t had to have this conversation, it’s probably still on the early side. But, when do you start thinking about sort of some of those re-charter discussions? Do they happen in the first half of 2017 or are they still sort of several quarters off? Just want to get a sense of maybe how that discussion kind of goes.

Andy Orekar

Sure. So I guess, I would say, as you say, this is still relatively early; our first strong period ends in May of 2018. So, it is still on the early side. I think having said that given that the ships are on charter to Shell and the book of business we have with Shell between GasLog and GasLog Partners, it’s not an exaggeration to say we are in weekly dialog with them around these ships and others for future opportunities. And so, it is top of our list. But, given the market backdrop and what we see as a gradually tightening market through 2017 and then a stronger market in 2018 and 2019 we continue to feel very confident about their ability to be re-chartered either with Shell or someone else.

Chris Wetherbee

Okay. My last question and I’ll turn it over; just kind of get a sense in terms of reset now in terms of capital potentially for dropdown. You’ve talked about doing more here. Just in terms of benchmarks we can look at from a multiple standpoint, EBITDA multiple, we can just look back in history and probably the best indicator of maybe how you guys think about valuation as you go forward for dropdowns?

Andy Orekar

Sure. I mean, I think as you know, every vessel is different, every charter is different. And so, I wouldn’t want to over generalize, but I think our recent multiple paid clearly has delivered a strong performance here with just half of a quarter in Q4 and where we were able to finance. And so, obviously, it’s my job as the CEO of the MLP to argue for the very best deal for our unit-holders. And so, I’d like to think we could have lower multiples in the future. But I think even after the most recent multiple, I think our model has shown that it can work quite well at these costs of capital. So, we’ll always try to do better, but I think for now, the most recent deal is probably a good guide as any.

Chris Wetherbee

Okay. That’s helpful. Thanks for your time. And Simon, hopefully we’ll get a chance to catch up before you head out, but certainly been a pleasure working with you. And best of luck in your future endeavors.

Simon Crowe

Thanks, Chris. I hope so. Thank you.

Operator

Our next question comes from the Jon Chappell with Evercore ISI. Your line is now open.

Jon Chappell

Andy, I just want to follow up on the charter renewals for next year and more so on the potential duration that you can see, and it’s kind of a two-part question. So, first, given the market backdrop that you just laid out, 2018 and 2019 obviously looking much better. Would you want to have a little bit shorter term exposure to those, maybe in three to five-year realm as a transition to the next decade or ideally will there be something longer? And part B then would be, is there a market right now for longer term contracts? It seems that there has been a shift overall industry to kind of shorter term duration. Is there even a market today to get something 5 plus, 7, 10 years?

Andy Orekar

Sure. I guess, I’ll answer your second question first. Absolutely, I think we’re seeing several active tenders that I think are the requirements, each one is a little different, but the requirements I would say are very consistent with the successful wins that our parent had last year in terms of Total and Centrica deals, [ph] which were seven-year deals. So, I do think there is a market for longer term charters. I think from our commercial discussion, people in 2018 are looking for everything from a year to seven and I guess there is probably a few examples where there might even be something beyond seven. I think the picture of volumes hitting the water next year and beyond, and depending on who the offtaker is or what the needs are, really gives them their needs for duration.

At GasLog Partners, I think what we’re always trying to do is give our investors as much visibility as possible on our cash flow stream. And so, while of course we wouldn’t want to turn down a materially higher rate three-year deal versus say a five or seven-year deal, I think if it is close, our objective is typically to pick duration over a small rate improvement. But I think, based on what we’re seeing, sort of all the above is what’s being sought depending on the charter is.

Jon Chappell

It’s good to hear that there is flexibility like that. Just my second one, Simon, echoing comments, you will be missed, especially your cheerful enthusiasm for the business. Just as you kind of think about wrapping things up, anything left on the agenda for GasLog Partners or is the balance sheet pretty much where it needs to be for the foreseeable future, and that’s your successors’ problem some point in the future?

Simon Crowe

Thanks Jon for your kind words, enjoyed it. No, I think GasLog Partners is in pretty good shape. There are always things that we’re looking to do in the future; we’re looking to be very proactive. But, as you, I think my successor will have those opportunities. So, I think GasLog and GasLog Limited is in really good shape.

Operator

Our next question comes from Noah Parquette with JP Morgan. Your line is now open.

Noah Parquette

Thanks. I just wanted to ask about your swap agreements. It looks like the counterparty was GasLog, the parent. Is that just a function of GasLog did the swaps at the parent level to [ph] pass-through or is there anything else there notable?

Andy Orekar

Sure. Simon, do you want to comment on that?

Simon Crowe

Sure. It’s absolutely nothing more complicated, GasLog just executed on those swaps and passed them through to GasLog Partners, GasLog Limited got a better credit profile and a bigger portfolio; so, nothing unusual about that. We’re very happy that we’ve swapped actually; obviously the rates are starting upon trend upward. So, we took that decision and had a good decision about it and it proved to be the right thing.

Noah Parquette

That makes sense. And are you finally at that target of about 50% swaps, or would you raise that?

Simon Crowe

I think we are very comfortable with that sort of level. But I think we would look to potentially raise that a little bit more. Again, we are open minded that. Given sort of fixed term, long-term nature of the cash flow at GasLog Partners, I think we would look to increase that somewhat; obviously if you can fix away a lot of your risk and interest rate being one of them, then I think that would be very prudent. But, most treasury teams have sort of 50-50 type approach.

Operator

Our next question comes from Ben Nolan with Stifel. Your line is now open.

Ben Nolan

Thanks. Well, I have several. So, the first has to do with maybe now that you guys have done the equity raise and have talked to the possibility of doing dropdown in the first half of this year. I was hoping that maybe you could give a little bit finer detail around that. I assume you don’t want to sit on a higher unit count for really a long period of time. So, should we expect something in the frontend of the first half of the year or…? And associated with that, I mean is it probably likely that the best dropdown candidates are kind of the more modern assets with little bit longer tenure with respect to the contracts so far as you’re concerned?

Andy Orekar

Sure. Hey, Ben, it’s Andy. So, I think as I mentioned in our remarks, we plan to target a vessel that has a charter through to 2023 or later, which we are very fortunate to have a lot of choices in that regard. And I think as you said, we are -- the equity was raised because of really opportunistic moment we had with a strong move in the unit price and some substantial reverse anchor [ph] we had. And so, you’re spot on. We want to deploy that capital as soon as we can. There are some things that make the dropdown timing -- define the timing of deals to closing which includes bank approvals for vessel level debt that and those have kind of a life of their own. But, I think if you look back at the Seattle process last year, we raised the capital in early August and announced the acquisition in late October and then closed it in early November. So, I think that timeline is probably the correct scope, maybe three months from capital raise, acquisition close; it’s probably as good as any as a marker for what we hope to do with this capital.

Ben Nolan

Okay. That’s helpful. And then associated with that and I appreciate that you guys have pretty good reverse inquiry on a deal. But, I believe Simon, you mentioned there was a number of capital sources available to you, including whatever the bond market, which have been a few of the Norwegian bonds [indiscernible] and the preferreds. Especially going forward, I mean how are you sort of weighing out your relative cost of capital among those various sources? I think it would appear to me that maybe this equity raise might help you to be a little overequitized. Does that mean, it’s easier to do bonds or how are you kind of thinking through that?

Andy Orekar

Sure. Ben, I’ll comment, and Simon can fill in as well. I mean, I think you said it right. Since, our IPO, we’ve kind of aired on the side of being quite conservative on the equity front and really tried to take it when it was available at a reasonable cost. And so, we ended the quarter at about 55% debt to cap, post the equity raise; it’s number under 53. And so, we do feel like we have good cushion for other instruments, be they on the bond side or potentially on the preferred equity side. So, I think we of course would like to see our equity cost of capital lower. We hope that with potential tailwind from the overall MLP market, we’ll be able to enjoy a bit of that yield compression that seems to be in the early innings right now. But clearly, the equity cost that we have on the common side as evidenced by our fourth quarter, seems to be quite effective with our sort of entry costs for new projects and acquisitions. So, I think we always keep one eye on the equity, but to the extent that we can do better with other instruments without over taxing the balance sheet, I think we’ll certainly do so.

Ben Nolan

Okay. Sorry, go ahead.

Simon Crowe

So, I was going to add, I completely agree with Andy. And I think as we get bigger, our track record develops and we grow. I think as Andy said, we always have many eyes on different sources of capital and those markets coming, but it’s all about reducing the cost of capital, the overall weighted average cost of capital, without over taxing, as Andy said, the balance sheet.

Ben Nolan

Sure. And then lastly from me just on a more sort of an industry perspective. You laid out on slide how the market is going to need, theoretically 50 ships to handle all those new contracts. Do you think that’s a 2017 event by and large with respect to the contracting of remaining 50 or approximately close to that? I mean, are we talking in the immediate term, would you expect on a lot of that or does it kind of get stretched out little further?

Andy Orekar

Yes. I think it would be a mix, Ben. I think a portion of -- or people who are committed to new building tonnage and have commitment beginning in 2019, sort of the time is now. And so, I think for some of the tenders we’re seeing with offtake requirement in that year, there would still be time, not a lot of time, but there still would be time for a new building. I think for some other tender processes that have dragged out or people who filled some, but not all of their needs with new buildings, I think beginning in 2018, there simply going to have to come from on the water tonnage, which I think will address some of that 50 as well. So, I think it’s a mix. But I wouldn’t want you to think that all 50 ships will be ordered in the first half of 2017, because I’m uncertain that some of that requirement will come from on the water vessels.

Ben Nolan

Okay, great. Thanks, Andy. And Simon, just to reiterate what other people said, it’s been a real pleasure. And I am sure we’ll talk again. But, I’ll miss some of those road shows and all of the things that we’ve done.

Simon Crowe

Thanks, Ben.

Operator

Our next question comes from the line Spiro Dounis with UBS Securities. Your line is now open.

Spiro Dounis

Hey. Good morning, guys. Thanks for taking the question. Simon, as a parting gift, first one is for you. Just want to follow-up on Jon’s comment or question from before, just around the balance sheet and maybe what’s left to do. I think at one point, I guess we are talking about refinancing the 2018 debt, and obviously still away, I think the second quarter 2018 is a timeframe there. But, as you got last few months here on the job, would you expect at least to have most of those pieces in place for your successor or is that really something that probably happens after you’ve left?

Simon Crowe

Yes. Good question. I mean, we’re actually looking at those right now, I can tell you. And we’re quite pleased with sort of the responses that we’re getting. We’re trying to be very proactive. Now, whether or not we execute that in the next quarter or the first half of this year, we’re still evaluating that. But we’re looking at that 2018 maturity and saying, yes, good time to really think about that and do something about. But, the exact timing of the execution remains to be seen.

So, now that we -- last year, we had a very busy year, as you know, refinancing a lot of our maturities and pushing them out. So, we still -- we’ve got the balance sheet; it’s in great place, it’s just one of the reasons that the transition is so smooth now and no immediate to do anything and no rush, but as we see pricing and opportunities open up to address some of those maturities, we will absolutely get after that. So, difficult to say whether my successor or myself will actually get to execute on those, but we definitely -- that’s front of mind now.

Spiro Dounis

Got it; I appreciate that. And then, just as we think about first half, obviously it sounds like you got some baked in growth, that allows you to hit the minimum point of your target. When you look at the second half of the year, Andy, what do you think you need to see either in LNG fundamentals or maybe just the MLP market, to maybe accelerate that growth and beat that 10% target?

Andy Orekar

I think we need to see a bit more of a reversion to what I’d call classic yield valuation in the MLP sector. I think some of the larger cap guys are benefitting from that I think -- those of us that are a bit smaller, I think it’s still a debate to be had. I think our yield, we feel very sustainable; I think we’ve proven that over the past three years. And at some point -- and I know sooner or later, there will be a more linear valuation between what you’re paying out in a sustainable manner and your unit pricing. And so, I think that through our investor dialog and what the rest of the market is doing I think will be clear. And so, if we feel like we can get value by growing additionally, we hope that we’re differentiated by growing at all right now. But I think if we feel like we can get value for our unit holders by growing over and above that minimum, we’ll certainly do it. But, it feels like we’re due for a year where the overall market helps support a distribution growth seeing that we are capable of delivering them. So, we’ll have to see how it progresses as we go through 2017.

Spiro Dounis

Got it. Last quick one from me. Just wanted to come back to something that you mentioned, I guess few calls ago, just on the possibility of converting I guess some of the steam ships you have in FSRUs and effectively doing a swap with GasLog. Just wondering if that’s still something that you’re considering and as we get closer to a time and conversion might need to happen or start soon to the extent you guys tender. Is there any more refined details around that or just how it would look mechanically?

Andy Orekar

Not at this time. I think since we last spoke, you saw our parent order long lead items for the conversion of an LNG carrier to an FSRU. Those items could be used for either a diesel ship or a steamship, depending on the projects and the requirement. So, I think it’s really going to be project by project and what the timing is relative to at least GLOP vessel’s existing charters. So, it’s something that’s still on the table, Spiro. But I don’t think we have enough clarity on a specific project yet, to give you a time feel for when it may happen. But we’ve been delighted by the progress we’ve made on the FSRU side up at the parent. And I’m sure Paul Wogan will give you a more of an update on that in a few weeks, But clearly, we see a lot of opportunities for carrier conversion.

Operator

Our next question comes from Michael Webber with Wells Fargo. Your line is now open.

Michael Webber

Andy, you mentioned in your last answer kind of a more, I guess you phrased it kind of a linear yield metric or you’re effectively talking about kind of a narrower yield or kind of getting something back to closer to the old normal in terms of valuation in referencing larger caps and having some success in getting to that point. The larger caps have also restructured their IDRs, which is maybe their growth profile and outlook, look bit easier, maybe couple headwinds. At what point would that enter the frame for GasLog Partners or what would be the catalyst, have you guys had serious discussions about that?

Andy Orekar

Sure. Good question, Mike. I think just for others that are on the call, at around $2 or sort of first-third, if you well of our 25% tier. So, we’ve got another $0.25 to go, so the 50% where clearly becomes more a mathematical issue. Having said that, I think my own personal view is that you need to be ahead on these things. Because clearly as distributable cash flow gets into the higher tier, it just becomes more difficult to grow whether you’re GasLog Partners or any MLP.

So, I would say that we are always seeking any manner we can to reduce our cost of capital at the LP. We exist to be our preferred funding vehicle for our parent and have been fairly effective in that regard and hope to be more effective in the future. So, it’s something we keep a close eye on, Mike. I think it’s still a bit early from where we are. But, I do want to -- it’s something that we do keep a close focus on as we model our future dropdown and other acquisition growth opportunities. So, it’s probably not a today issue, but as and when, it’s something that can be more effective for us. And this will have more of a quantitative impact; today the impact is sort of minimal as to not actually I think be really worth pursuing. But that will change in the future. So, it’s something we’ll continue to monitor.

Michael Webber

Okay. That’s helpful. And just on the dropdown pipeline, Andy. You mentioned you don’t want to just shoot for something with the contract that runs out beyond 2023. Within the mix, the parent that includes the Methane Becki Anne and Julia the Louise, both of which -- one runs 2023, the other one runs a bit longer. Just curious, when you think about the valuations on those two vessels versus the -- which are both 2010 versus something of a newer vintage. What kind of multiple spread do you think about between those two assets versus the rest of the pipeline? Is it half turn, full turn? Just how do you think about value I guess on the parent and which ones you pull first?

Andy Orekar

Sure. So, you just kind of picked up a little bit on Chris’s question earlier. And I think, each -- even though these are all very high quality vessels with long-term charges, there is a bit of G&A in terms of the charter rate EBITDA, even the cash flow profile, some have OpEx accelerator, some don’t. So, there each one has its own analysis, as I’m sure you can appreciate. So, I think what we try to measure up is our cost of capital where we can fund what the truly fair value of the vessel is from both our perspective and our parent’s perspective. You’re right in pointing out two vessels, we’re acquiring potentially higher EBITDA multiples than maybe some others and so that we have to be able to evaluate. Can we use this capital we’ve raised, and accretively acquire them to deliver sufficient growth that we think our unit holders would like? So, I think those are probably at a higher multiple than others on the page. But again, each one has sort of a fair market value determination at the time. And there may be an opportunity to acquire them at a level that delivers that accretion for us. But again, I think we are spoiled for choice a bit here. And so, we’ll target the vessel that gets the right outcome in a way that if we think we are able to deliver into Seattle.

Operator

Our next question comes from Gregory Lewis from Credit Suisse. Your line is now open.

Joe Nelson

Thanks for taking my question. This is Joe Nelson on Greg today.

Andy Orekar

Hi, Joe.

Joe Nelson

I guess, maybe just following up a little bit on some of the questions earlier regarding the sort of depth to the charter market. Given the kind of drop off we are going to see in the fleet growth and the limited number of sort of open vessels in the order book, when do you think that those discussions are going to start to happen, as these projects start to evolve as well? I mean, do you think this happens -- is it this year or is it next year and what’s your kind of view on what’s going to be required versus the timelines of when some of these projects are coming on?

Andy Orekar

Sure. Joe, it’s Andy. Just want to make sure, when you say the timing of those discussions, discussions for 2018 requirements and beyond or…

Joe Nelson

Yes, I mean just -- exactly. Yes. For some of these projects that are starting to maybe ramp up over the next call it two years to three years that don’t necessarily have their requirements filled at this point.

Andy Orekar

Sure, okay. So, I’d say that at the risk of giving you an all-of-the-above answer there are conversations are happening currently for many of the projects, some of the projects that have secured, some but not all of their shipping. Some offtakers have been involved in tender processes that will not conclude with new building delivered in time from when they’re taking volumes. And so, now, they’re looking at bridging vessels between when a new building could arrive, which is at this point is now really second half of 2019. So, I think they’re underway presently, particularly for those taking volumes next year.

Joe Nelson

Yes, great. Thanks. And then maybe just, you kind of call that -- is a bridging vessel kind of contract, even it would extend it maybe two or three years? Would that be attractive to GasLog Partners or would you still be looking for something of maybe a five-year plus range is still more attractive to you?

Andy Orekar

I think it depends on by how far you’re extending the existing charter and obviously what the rate would be. But, if it’s a charter of ours that is ending its firm period in 2020, adding a year or two to it would be very attractive. Conversely, if it’s a shorter term, if it’s shorter remaining on the term, we have to feel good about being able to charter the ship again say in a year’s time. But we don’t want to rule that out depending on the rate environment that we are in. And as we said, we expect the next several years to be strong from 2018 forward.

Operator

Our next question comes from Ben Friedman with Morgan Stanley. Your line is now open.

Ben Friedman

So, maybe it’s better question for the parent, but maybe just to get an early take on the general market landscape. So, it seems as though, moving forward it seems as spot rates are improving, up roughly 30% year-on-year, but in vessel availability -- utilization has lowered and the market is more liquid. Where do you guys expect that your spot rates moving from maybe through 2017 and more importantly how do you think it relates to the long-term charter market?

Andy Orekar

Sure. Ben, it’s Andy. Well, again, I’ll let Paul in a few weeks comment more on this. But today, spot rates for diesel ships are in the high 40s, around 48,000, we’ve seen some in the Atlantic Basin, trade in the low 50s. And so I think that as you noted is significantly higher than where we were, say a year ago at this time. I think we would expect that to continue to firm during the year for all the reasons we discussed on this call. And it’s really a function of getting more liquefaction on the water and then having the ability for gas to trade, not necessarily to its nearest destination, but we can command the best price. And right now we’re seeing some very attractive opportunities for the trading gas in both Europe and Asia. So, again, we think it will slowly move higher during the year. We don’t have sort of an official house forecast that we published, but I think it’s probably consistent with what you’re seeing from Clarkson and other big providers out there.

Ben Friedman

Sure. And then, sticking to the macro a bit, do you -- given the rising oil price environment and the improving macro, do you anticipate new FIDs in 2017 and 2018? And if so, what would be your take perhaps on a number of certain projects? And in relationship to these projects, do you think, they’ll require new long-term offtakes or new long-term offtakes from here?

Andy Orekar

So, in other words, if there is a new liquefaction project will require a new offtake or the existing projects require a new offtake?

Ben Friedman

Comment, either/or, probably more of a focus on these new FIDs coming online with or without offtakes?

Andy Orekar

Sure. Well, I think you’ve seen thus far some meaningful progress on floating liquefaction side. And I think I’m certain, we’ll see other, what we would think of as typically smaller scale, 1 million or 2 million tons projects that are probably quite busy as we speak arranging offtake. And so, I think that clearly seems to be a feature of the market that is growing; in aggregate, it’s of course small relative to say, Sabine Pass. But I’m sure that will continue as providers get better at reducing costs of those projects. So, again, I think we feel that there is -- all the things we’ve been talking about for many years, 2016 showed that they’re very much on track. And I’m sure, there will be additional small scale that adds to that larger macro picture.

Ben Friedman

Sure. So just one more follow-up on that is, so, if a project were to come on line without an offtake, what sort of impact do you think that would have on the spot rate environment, if continued projects come out without these long-term offtakes at specific prices?

Andy Orekar

Yes. It’s a good question and I guess it turns out, who is ultimately going to be buying the gas, if it’s not contracted and where it goes. I mean, I think the interesting phenomenon we’ve seen in late last year, early in this year, was people like Pakistan announcing 240 cargos from ENI, a producer and then Gunvor, a large commodity trader. So, that’s a great deal of gas that they’re going to be sourcing from probably all over the world. And so, depending on where they’re sourcing it and being able to sell it in Pakistan be an FSRU that that opportunity is quite attractive for shippers, because they’re not just going to sell at lower shipping rates, they’re going to sell at the gas price differential. So, I think it will be positive to see more liquefaction on the water, especially if it’s in more some of these remote locations where trade rates could be created.

Operator

[Operator Instructions] Showing no further questions in queue at this time, I’d like to turn the call back to Mr. Orekar for closing remarks.

Andy Orekar

Thank you, Liz. I just wanted to thank everyone today for listening and their continued interest in GasLog Partners. We certainly appreciate it and we look forward to speaking to you next quarter. Thanks very much.

Simon Crowe

Thank you. Thank you.

Operator

Ladies and gentlemen, thank you for your participating in today’s conference. This concludes the program. You may now disconnect. Everyone, have a great day.

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