During its Q2 2024 earnings call on August 2, 2024, Capital Product Partners (NASDAQ: CPLP) announced a significant milestone in its corporate evolution: the company will officially change its name to Capital Clean Energy Carriers Corp. by August 26, 2024. This change which will be reflected in its new ticker (NASDAQ:CCEC) marks also a strategic shift towards the Liquefied Natural Gas (LNG) and Energy Transportation sectors. Additionally, CPLP has embarked on a new strategy to become exclusively an owner-operator of an LNG and gas tanker fleet. By 2027, the company plans to expand its fleet to 18 modern two-stroke vessels, with the addition of 6 more LNG carriers, each with a firm charter duration of 6.5 years and a contracted revenue of $2.4 billion.
This article is based on the company’s second quarter 2024 earnings call, which also includes questions from the following research analysts covering the stock.
- Liam Burke, B. Riley FBR
- Omar Nokta, Jefferies Equity Research
- Ben Nolan, Stifel Nicolaus
- Michael Webber, Webber Research & Advisory
Key Highlights:
- Conversion and New Name: CPLP announced the approval to convert from its MLP structure to a C-Corp, targeting completion on or around August 26, 2024. The conversion involves replacing common units with common shares, eliminating general partner units and their rights. Each CPLP common unit will be converted into one CCEC common share with a par value of $0.01 per share.
- Addition of LPG and CO2 carrier fleet: In Q2 2024, CPLP ordered 10 newbuilding gas carriers to be delivered in 2026 and 2027 for a total of $756 million. Six of those are dual-fuel (LPG and traditional fuel oil) MGCs, and the remaining four are 22,000 cbm Liquid CO2 carriers. They also acquired three LNG carriers and sold five container vessels, generating a $15.2 million gain.
- Higher revenues lead Q2 2024: CPLP reported a significant increase in net income, rising by 362.2% to $34.2 million from $7.4 million the previous year. Revenues also surged to $97.7 million, fueled by the addition of new vessels. On a fully delivered basis of its vessels under construction, the Company’s fleet will grow to 36 vessels with an average age of 2.3 years.
- Dividend Distribution: CPLP plans to maintain a $0.15 per unit quarterly distribution during its growth phase with a potentially variable earnings-based payout possibly before the delivery of its six LNG newbuildings in 2026/2027.
- Positioned for LNG Market Growth and New Energy Opportunities: The LNG market outlook is positive, with strong demand anticipated from 2025, driven by new liquefaction capacities in the U.S. and Qatar. CPLP is positioned to capitalize on emerging opportunities in LNG, low-carbon ammonia, and liquid CO2 transportation.
- Clean Energy Focus: CPLP aims to lead in clean energy shipping with a fleet of dual-fuel LNG carriers, medium gas carriers, and liquid CO2 vessels. The company’s strategy includes leveraging its vessels for both traditional and emerging markets, particularly in carbon capture and storage (CCS) initiatives.
Transition to Corporation
In November 2023, the company announced its intention to shift focus towards the LNG and gas business and convert its corporate structure from a Marshall Islands Limited Partnership to a Marshal Islands Corporation. During the earnings call, the company confirmed that CPLP’s General Partner, (GP) and the Special Committee of the Board have agreed to the terms of this conversion. This includes converting all common units to common shares and eliminating GP units and their incentive distribution rights. Furthermore, the GP’s management and consent rights, such as appointing three directors and vetoing significant corporate transactions, will be eliminated.
Becoming a corporation is anticipated to broaden investor base and improve liquidity and enhance governance, potentially leading to index participation. This aligns with the company’s goal of becoming the largest U.S.-listed LNG company and gas platform focused on energy transition, Mr. Kalogiratos stated.
Financial Performance & Fleet Growth
In the second quarter of 2024, the company made a strategic investment of $756 million in 10 new gas carriers, expected to be delivered between Q1 2026 and Q3 2027. These include dual-fuel LPG medium gas carriers and the first-ever liquid CO2 handy gas carriers, which can also transport LPG and ammonia.
During Q2 2024, the company took delivery of three LNG carriers: ‘Assos’, ‘Apostolos’, and ‘Aktoras’, as part of an agreement to acquire 11 latest-generation LNG carriers. Five container vessels were also sold, realizing a gain of $15.2 million. Additionally, the LNG carrier, ‘Aristidis I’ was refinanced, releasing $54.8 million of additional liquidity, and sale and leaseback financing was approved for two other LNG carriers.
Continuing on this positive trajectory, the company reported a net income of $34.2 million for Q2 2024, a marked improvement from $7.4 million in Q2 2023. Total revenue for the quarter climbed to $97.7 million, compared to $88.5 million the previous year, driven by the addition of new vessels. While overall expenses slightly decreased, interest expenses increased due to higher levels of debt and rising interest rates.
The company’s fleet, upon delivery of all contracted vessels, will comprise 36 ships with an average age of 2.3 years, capable of transporting various cargos including LNG, LPG, liquid CO2, and low-carbon ammonia. Currently, the company operates 20 vessels, including 12 latest-generation LNG carriers and eight legacy container vessels, all under medium- to long-term charters with top-tier counterparties.
The legacy container fleet, despite its small size, continues to provide strategic and funding flexibility, having raised close to $180 million from sales in less than six months, the company’s CEO noted.
CPLP has strategically divested from its containership and dry bulk assets over the past year to focus on becoming a pure-play energy transport company. However, the recent rise in containership values and charter rates has created new opportunities for the company’s divestment plans, particularly concerning its five 5,000 TEU ships, which are set to come off contract in 2025.
Contracted cash flows are robust, with a revenue backlog of $2.4 billion from 12 LNG carriers, supplemented by $400 million from the container book. This provides a remaining charter duration of 7.2 years, ensuring cash flow stability during this growth phase.
Developments throughout the world support the positive long-term outlook for LNG, with strong demand expected from 2025 onwards, driven by new liquefaction capacities primarily in the U.S. and Qatar. The medium- to long-term outlook suggests significant growth in LNG trade volumes, necessitating additional LNG carriers.
