Company Quick10K Filing
Gaslog Partners
20-F 2019-12-31 Filed 2020-03-03
20-F 2018-12-31 Filed 2019-02-26
20-F 2017-12-31 Filed 2018-02-12
20-F 2016-12-31 Filed 2017-02-13
20-F 2015-12-31 Filed 2016-02-12

GLOP 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Partnership
Item 4.A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Unitholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. [Reserved]
Item 16.A. Audit Committee Financial Expert
Item 16.B. Code of Ethics
Item 16.C. Principal Accountant Fees and Services
Item 16.D. Exemptions From The Listing Standards for Audit Committees
Item 16.E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16.F. Change in Partnership's Certifying Accountant
Item 16.G. Corporate Governance
Item 16.H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-4.5 c83888_ex4-5.htm
EX-4.9 c83888_ex4-9.htm
EX-4.15 c83888_ex4-15.htm
EX-4.16 c83888_ex4-16.htm
EX-8.1 c83888_ex8-1.htm
EX-12.1 c83888_ex12-1.htm
EX-12.2 c83888_ex12-2.htm
EX-13.1 c83888_ex13-1.htm
EX-13.2 c83888_ex13-2.htm

Gaslog Partners Earnings 2015-12-31

Balance SheetIncome StatementCash Flow

20-F 1 c83888_20f.htm 3B2 EDGAR HTML -- c83888_20f.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 20-F

 

 

 

(Mark One)

o

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

x

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

GasLog Partners LP

(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant’s name into English)

Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)

c/o GasLog Monaco S.A.M.
Gildo Pastor Center
7 Rue du Gabian
MC 98000, Monaco

(Address of principal executive offices)

Nicola Lloyd, General Counsel
c/o GasLog Monaco S.A.M.
Gildo Pastor Center
7 Rue du Gabian
MC 98000, Monaco

Telephone: +377 97 97 51 15 Facsimile: +377 97 97 51 24
(Name, Telephone, Facsimile number and Address of Registrant contact person)

 

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

 

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Units representing limited partner interests

 

New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d) OF THE ACT: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2015, there were 21,822,358 Partnership common units outstanding.

Indicate by check mark if the Company is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes o No x

If this report is an annual or transition report, indicate by check mark if the Company is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.      Yes o No x

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes x No o

Indicate by check mark whether the Company has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Company was required to submit and post such files).      Yes o No o

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

Large accelerated filer o

 

Accelerated filer x

 

Non-accelerated filer o

 

Indicate by check mark which basis of accounting the Company has used to prepare the financial statements included in this filing.

 

 

 

 

 

U.S. GAAP o

 

International Financial Reporting Standards as issued
by the International Accounting Standards Board
x

 

Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Company has elected to follow.      Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes o No x

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

Page

ABOUT THIS REPORT

 

 

 

ii

 

FORWARD-LOOKING STATEMENTS

 

 

 

ii

 

PART I

 

 

 

 

 

1

 

ITEM 1.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

 

 

1

 

ITEM 2.

 

OFFER STATISTICS AND EXPECTED TIMETABLE

 

 

 

1

 

ITEM 3.

 

KEY INFORMATION

 

 

 

1

 

ITEM 4.

 

INFORMATION ON THE PARTNERSHIP

 

 

 

43

 

ITEM 4.A.

 

UNRESOLVED STAFF COMMENTS

 

 

 

62

 

ITEM 5.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

 

 

62

 

ITEM 6.

 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

 

 

86

 

ITEM 7.

 

MAJOR UNITHOLDERS AND RELATED PARTY TRANSACTIONS

 

 

 

93

 

ITEM 8.

 

FINANCIAL INFORMATION

 

 

 

104

 

ITEM 9.

 

THE OFFER AND LISTING

 

 

 

107

 

ITEM 10.

 

ADDITIONAL INFORMATION

 

 

 

107

 

ITEM 11.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 

 

115

 

ITEM 12.

 

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

 

 

117

 

PART II

 

 

 

 

 

118

 

ITEM 13.

 

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

 

 

118

 

ITEM 14.

 

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

 

 

118

 

ITEM 15.

 

CONTROLS AND PROCEDURES

 

 

 

118

 

ITEM 16.

 

[RESERVED]

 

 

 

120

 

ITEM 16.A.

 

AUDIT COMMITTEE FINANCIAL EXPERT

 

 

 

120

 

ITEM 16.B.

 

CODE OF ETHICS

 

 

 

120

 

ITEM 16.C.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

 

 

120

 

ITEM 16.D.

 

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

 

 

121

 

ITEM 16.E.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

 

 

121

 

ITEM 16.F.

 

CHANGE IN PARTNERSHIP’S CERTIFYING ACCOUNTANT

 

 

 

121

 

ITEM 16.G.

 

CORPORATE GOVERNANCE

 

 

 

121

 

ITEM 16.H.

 

MINE SAFETY DISCLOSURE

 

 

 

122

 

PART III

 

 

 

 

 

123

 

ITEM 17.

 

FINANCIAL STATEMENTS

 

 

 

123

 

ITEM 18.

 

FINANCIAL STATEMENTS

 

 

 

123

 

ITEM 19.

 

EXHIBITS

 

 

 

123

 

INDEX TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

F-1

 

i


 

ABOUT THIS REPORT

In this annual report, unless otherwise indicated:

 

 

“GasLog Partners”, the “Partnership”, “we”, “our”, “us” or similar terms refer to GasLog Partners LP or any one or more of its subsidiaries, or to all such entities unless the context otherwise indicates;

 

 

“GasLog”, depending on the context, refers to GasLog Ltd. and to any one or more of its direct and indirect subsidiaries, other than GasLog Partners;

 

 

“our general partner” refers to GasLog Partners GP LLC, the general partner of GasLog Partners and a wholly owned subsidiary of GasLog;

 

 

“GasLog LNG Services” refers to GasLog LNG Services Ltd. a wholly owned subsidiary of GasLog;

 

 

“GasLog Carriers” refers to GasLog Carriers Ltd.;

 

 

“GasLog Partners Holdings” refers to GasLog Partners Holdings LLC;

 

 

“Ceres Shipping” refers to Ceres Shipping Ltd.;

 

 

“BG Group” refers to BG Group plc; “MSL” refers to Methane Services Limited, a subsidiary of BG Group, the acquisition of which by Royal Dutch Shell plc was approved in shareholder meetings held on January 27 and 28, 2016; “Samsung” refers to Samsung Heavy Industries Co. Ltd.; “Hyundai” refers to Hyundai Heavy Industries Co., Ltd.; and “Shell” refers to Royal Dutch Shell plc, or, in each case, any one or more of their subsidiaries or to such entities collectively;

“LNG” refers to liquefied natural gas;

 

 

“dollars” and “$” refer to, and amounts are presented in, U.S. dollars; and

 

 

“cbm” refers to cubic meters.

FORWARD-LOOKING STATEMENTS

All statements in this annual report that are not statements of historical fact are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that address activities, events or developments that the Partnership expects, projects, believes or anticipates will or may occur in the future, particularly in relation to our operations, cash flows, financial position, liquidity and cash available for dividends or distributions, plans, strategies, business prospects and changes and trends in our business and the markets in which we operate. In some cases, predictive, future-tense or forward-looking words such as “believe”, “intend”, “anticipate”, “estimate”, “project”, “forecast”, “plan”, “potential”, “may”, “should”, “could” and “expect” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. In addition, we and our representatives may from time to time make other oral or written statements which are forward-looking statements, including in our periodic reports that we file with the Securities and Exchange Commission, or the “SEC”, other information sent to our security holders, and other written materials. We caution that these forward-looking statements represent our estimates and assumptions only as of the date of this annual report or the date on which such oral or written statements are made, as applicable, about factors that are beyond our ability to control or predict, and are not intended to give any assurance as to future results. Any of these factors or a combination of these factors could materially affect future results of operations and the ultimate accuracy of the forward-looking statements. Accordingly, you should not unduly rely on any forward-looking statements.

Factors that might cause future results and outcomes to differ include, but are not limited to, the following:

 

  general LNG shipping market conditions and trends, including spot and long-term charter rates, ship values, factors affecting supply and demand of LNG and LNG shipping, technological advancements and opportunities for the profitable operations of LNG carriers;

ii


 

 

 

our ability to leverage GasLog’s relationships and reputation in the shipping industry;

 

 

our ability to enter into time charters with new and existing customers;

 

 

changes in the ownership of our charterers;

 

 

our customers’ performance of their obligations under our time charters and other contracts;

 

 

our future operating performance, financial condition, liquidity and cash available for dividends and distributions;

 

 

our ability to purchase vessels from GasLog in the future;

 

 

our ability to obtain financing to fund capital expenditures, acquisitions and other corporate activities, funding by banks of their financial commitments, funding by GasLog of the Sponsor Credit Facility (as defined below) and our ability to meet our restrictive covenants and other obligations under our credit facilities;

 

 

future, pending or recent acquisitions of ships or other assets, business strategy, areas of possible expansion and expected capital spending or operating expenses;

 

 

our expectations about the time that it may take to construct and deliver newbuildings and the useful lives of our ships;

 

 

number of off-hire days, drydocking requirements and insurance costs;

 

 

fluctuations in currencies and interest rates;

 

 

our ability to maintain long-term relationships with major energy companies;

 

 

our ability to maximize the use of our ships, including the re-employment or disposal of ships no longer under time charter commitments, including the risk that our vessels may no longer have the latest technology at such time;

 

 

environmental and regulatory conditions, including changes in laws and regulations or actions taken by regulatory authorities;

 

 

the expected cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards, requirements imposed by classification societies, and standards imposed by our charterers applicable to our business;

 

 

risks inherent in ship operation, including the discharge of pollutants;

 

 

GasLog’s ability to retain key employees and provide services to us, and the availability of skilled labor, ship crews and management;

 

 

potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists;

 

 

potential liability from future litigation;

 

 

our business strategy and other plans and objectives for future operations;

 

 

any malfunction or disruption of information technology systems and networks that our operations rely on or any impact of a possible cybersecurity breach; and

 

 

other factors discussed in “Item 3. Key Information—D. Risk Factors” of this annual report.

We undertake no obligation to update or revise any forward-looking statements contained in this annual report, whether as a result of new information, future events, a change in our views or expectations or otherwise. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.

iii


 

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

This information should be read together with, and is qualified in its entirety by, our combined and consolidated financial statements and the notes thereto included in “Item 18. Financial Statements”. You should also read “Item 5. Operating and Financial Review and Prospects”.

Certain numerical figures included in the below tables have been rounded. Discrepancies in tables between totals and the sums of the amounts listed may occur due to such rounding.

A.1. IFRS Common Control Reported Results

The following table presents, in each case for the periods and as of the dates indicated, selected historical financial and operating data. The selected historical financial data as of December 31, 2014 and 2015 and for each of the years in the three year period ended December 31, 2015 has been derived from our audited combined and consolidated financial statements included in “Item 18. Financial Statements”. The historical financial data as of December 31, 2013 and 2012 and for the year ended December 31, 2012 is a summary of and is derived from our audited combined and consolidated financial statements which are not included in this report. The financial statements have been prepared in accordance with International Financial Reporting Standards, or “IFRS”, as issued by the International Accounting Standards Board, or the “IASB”.

Prior to the closing of our initial public offering, or “IPO”, we did not own any vessels. The following presentation assumes that our business was operated as a separate entity prior to its inception. For the periods prior to the closing of the IPO, our financial position, results of operations and cash flows reflected in our financial statements include all expenses allocable to our business, but may not be indicative of those that would have been incurred had we operated as a separate public entity for all years presented or of future results. The annual combined and consolidated financial statements and our historical financial and operating data under “IFRS Common Control Reported Results” include the accounts of the Partnership and its subsidiaries assuming that they are consolidated from the date of their incorporation by GasLog, as they were under the common control of GasLog. The transfer of the three initial vessels from GasLog to the Partnership at the time of the IPO, the transfer of two vessels from GasLog to the Partnership in September 2014 and the transfer of three vessels from GasLog to the Partnership in July 2015 were each accounted for as a reorganization of entities under common control under IFRS.

1


 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2012

 

2013

 

2014

 

2015

 

 

(in thousands of U.S. dollars)

STATEMENT OF PROFIT OR LOSS

 

 

 

 

 

 

 

 

Revenues

 

 

$

 

 

 

 

$

 

64,143

 

 

 

$

 

158,170

 

 

 

$

 

199,689

 

Vessel operating costs

 

 

 

 

 

 

 

(12,311

)

 

 

 

 

(30,752

)

 

 

 

 

(42,788

)

 

Voyage expenses and commissions

 

 

 

 

 

 

 

(786

)

 

 

 

 

(2,028

)

 

 

 

 

(2,442

)

 

Depreciation

 

 

 

 

 

 

 

(12,238

)

 

 

 

 

(33,931

)

 

 

 

 

(44,253

)

 

General and administrative expenses

 

 

 

(30

)

 

 

 

 

(1,525

)

 

 

 

 

(6,382

)

 

 

 

 

(10,986

)

 

 

 

 

 

 

 

 

 

 

(Loss)/profit from operations

 

 

 

(30

)

 

 

 

 

37,283

 

 

 

 

85,077

 

 

 

 

99,220

 

 

 

 

 

 

 

 

 

 

Financial costs

 

 

 

(1

)

 

 

 

 

(12,133

)

 

 

 

 

(33,393

)

 

 

 

 

(27,202

)

 

Financial income

 

 

 

110

 

 

 

 

32

 

 

 

 

40

 

 

 

 

26

 

(Loss)/gain on interest rate swaps

 

 

 

(940

)

 

 

 

 

1,036

 

 

 

 

(8,078

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expenses, net

 

 

 

(831

)

 

 

 

 

(11,065

)

 

 

 

 

(41,431

)

 

 

 

 

(27,176

)

 

 

 

 

 

 

 

 

 

 

(Loss)/profit for the year

 

 

$

 

(861

)

 

 

 

$

 

26,218

 

 

 

$

 

43,646

 

 

 

$

 

72,044

 

 

 

 

 

 

 

 

 

 

(Loss)/profit attributable to GasLog’s operations(1)

 

 

$

 

(861

)

 

 

 

$

 

26,218

 

 

 

$

 

29,102

 

 

 

$

 

7,004

 

Partnership’s profit(1)

 

 

$

 

 

 

 

$

 

 

 

 

$

 

14,544

 

 

 

$

 

65,040

 

EARNINGS PER UNIT ATTRIBUTABLE TO THE PARTNERSHIP(2)

 

 

 

 

 

 

 

 

Common units

 

 

$

 

 

 

 

$

 

 

 

 

$

 

0.75

 

 

 

$

 

2.38

 

Subordinated units

 

 

$

 

 

 

 

$

 

 

 

 

$

 

0.56

 

 

 

$

 

1.85

 

General partner units

 

 

$

 

 

 

 

$

 

 

 

 

$

 

0.66

 

 

 

$

 

2.28

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

2012

 

2013

 

2014

 

2015

 

 

(in thousands of U.S. dollars)

STATEMENT OF FINANCIAL POSITION DATA

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

 

2

 

 

 

$

 

14,404

 

 

 

$

 

47,242

 

 

 

$

 

60,402

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

21,700

 

 

 

 

 

Vessels

 

 

 

 

 

 

 

562,531

 

 

 

 

1,311,857

 

 

 

 

1,274,734

 

Vessels under construction

 

 

 

118,482

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

128,765

 

 

 

 

581,770

 

 

 

 

1,388,164

 

 

 

 

1,347,170

 

Borrowings—current portion

 

 

 

 

 

 

 

22,075

 

 

 

 

21,000

 

 

 

 

325,768

 

Borrowings—non-current portion

 

 

 

 

 

 

 

363,917

 

 

 

 

775,537

 

 

 

 

415,723

 

Total equity

 

 

 

106,629

 

 

 

 

156,169

 

 

 

 

554,304

 

 

 

 

578,177

 

NUMBER OF UNITS OUTSTANDING

 

 

 

 

 

 

 

 

General Partner units

 

 

 

 

 

 

 

 

 

 

 

492,750

 

 

 

 

645,811

 

Common units

 

 

 

 

 

 

 

 

 

 

 

14,322,358

 

 

 

 

21,822,358

 

Subordinated units

 

 

 

 

 

 

 

 

 

 

 

9,822,358

 

 

 

 

9,822,358

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2012

 

2013

 

2014

 

2015

 

 

(in thousands of U.S. dollars)

CASH FLOW DATA

 

 

 

 

 

 

 

 

Net cash (used in)/provided by operating activities

 

 

$

 

(110

)

 

 

 

$

 

32,159

 

 

 

$

 

109,598

 

 

 

$

 

113,230

 

Net cash provided by/(used in) investing activities

 

 

 

110

 

 

 

 

(454,263

)

 

 

 

 

(807,766

)

 

 

 

 

14,592

 

Net cash provided by/(used in) financing activities

 

 

 

 

 

 

 

436,506

 

 

 

 

731,005

 

 

 

 

(114,662

)

 

2


 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2012

 

2013

 

2014

 

2015

FLEET DATA*

 

 

 

 

 

 

 

 

Number of LNG carriers at end of period

 

 

 

 

 

 

 

3

 

 

 

 

8

 

 

 

 

8

 

Average number of LNG carriers during period

 

 

 

 

 

 

 

2.3

 

 

 

 

6.1

 

 

 

 

8

 

Average age of LNG carriers (years)

 

 

 

 

 

 

 

0.76

 

 

 

 

5.7

 

 

 

 

6.7

 

Total calendar days of fleet for the period

 

 

 

 

 

 

 

833

 

 

 

 

2,230

 

 

 

 

2,920

 

Total operating days of fleet for the period(3)

 

 

 

 

 

 

 

833

 

 

 

 

2,222

 

 

 

 

2,855

 

 

 

*

 

The Fleet Data above is calculated consistent with our IFRS Common Control Reported Results.

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2012

 

2013

 

2014

 

2015

 

 

(in thousands of U.S. dollars)

OTHER FINANCIAL DATA

 

 

 

 

 

 

 

 

EBITDA(4)

 

 

$

 

(30

)

 

 

 

$

 

49,521

 

 

 

$

 

119,008

 

 

 

$

 

143,473

 

Adjusted EBITDA(4)

 

 

 

(42

)

 

 

 

 

49,559

 

 

 

 

118,875

 

 

 

 

143,523

 

Capital expenditures:

 

 

 

 

 

 

 

 

Payment for vessels and vessel additions

 

 

 

 

 

 

 

452,792

 

 

 

 

787,601

 

 

 

 

7,142

 

Distributable cash flow(4)

 

 

 

N/A

 

 

 

 

N/A

 

 

 

 

27,118

 

 

 

 

72,310

 

Cash distributions declared

 

 

 

N/A

 

 

 

 

9,800

 

 

 

 

21,219

(5)

 

 

 

 

51,192

(6)

 

Cash distributions paid

 

 

 

N/A

 

 

 

 

 

 

 

 

23,169

(5)

 

 

 

 

59,042

(6)

 

A.2. Partnership Performance Results

The financial and operating data below exclude amounts related to vessels currently owned by the Partnership for the periods prior to their respective transfer to GasLog Partners from GasLog, as the Partnership was not entitled to the cash or results generated in the periods prior to such transfers. The Partnership Performance Results are non-GAAP financial measures that the Partnership believes provide meaningful supplemental information to both management and investors regarding the financial and operating performance of the Partnership because such presentation is consistent with the calculation of the quarterly distribution and the earnings per unit, which similarly exclude the results of vessels prior to their transfer to the Partnership.

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2012

 

2013

 

2014

 

2015

 

 

(in thousands of U.S. dollars)

PARTNERSHIP PERFORMANCE STATEMENT OF PROFIT OR LOSS

 

 

 

 

 

 

 

 

Revenues(4)

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

65,931

 

 

 

$

 

168,927

 

Vessel operating costs(4)

 

 

 

 

 

 

 

 

 

 

 

(12,226

)

 

 

 

 

(33,656

)

 

Voyage expenses and commissions(4)

 

 

 

 

 

 

 

 

 

 

 

(817

)

 

 

 

 

(2,102

)

 

Depreciation(4)

 

 

 

 

 

 

 

 

 

 

 

(13,352

)

 

 

 

 

(35,981

)

 

General and administrative expenses(4)

 

 

 

 

 

 

 

 

 

 

 

(4,591

)

 

 

 

 

(10,383

)

 

 

 

 

 

 

 

 

 

 

Profit from operations(4)

 

 

 

 

 

 

 

 

 

 

 

34,945

 

 

 

 

86,805

 

 

 

 

 

 

 

 

 

 

Financial costs(4)

 

 

 

 

 

 

 

 

 

 

 

(15,206

)

 

 

 

 

(21,789

)

 

Financial income(4)

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

24

 

Loss on interest rate swaps(4)

 

 

 

 

 

 

 

 

 

 

 

(5,218

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expenses, net(4)

 

 

 

 

 

 

 

 

 

 

 

(20,401

)

 

 

 

 

(21,765

)

 

 

 

 

 

 

 

 

 

 

Partnership’s profit(1)(4)

 

 

$

 

 

 

 

$

 

 

 

 

$

 

14,544

 

 

 

$

 

65,040

 

 

 

 

 

 

 

 

 

 

3


 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2012

 

2013

 

2014

 

2015

PARTNERSHIP PERFORMANCE FLEET DATA*

 

 

 

 

 

 

 

 

Number of LNG carriers at end of period

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

8

 

Average number of LNG carriers during period

 

 

 

 

 

 

 

 

 

 

 

2.4

 

 

 

 

6.5

 

Average age of LNG carriers (years)

 

 

 

 

 

 

 

 

 

 

 

4.5

 

 

 

 

6.7

 

Total calendar days of fleet for the period

 

 

 

 

 

 

 

 

 

 

 

885

 

 

 

 

2,377

 

Total operating days of fleet for the period(3)

 

 

 

 

 

 

 

 

 

 

 

885

 

 

 

 

2,377

 

 

 

*

 

The Partnership Performance Fleet Data above is calculated consistent with our Partnership Performance Results.

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2012

 

2013

 

2014

 

2015

 

 

(in thousands of U.S. dollars)

OTHER PARTNERSHIP PERFORMANCE FINANCIAL DATA

 

 

 

 

 

 

 

 

EBITDA(4)

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

48,297

 

 

 

$

 

122,786

 

Adjusted EBITDA(4)

 

 

 

 

 

 

 

 

 

 

 

48,156

 

 

 

 

122,842

 

Distributable cash flow(4)

 

 

 

 

 

 

 

 

 

 

 

27,118

 

 

 

 

72,310

 

Cash distributions declared

 

 

 

 

 

 

 

 

 

 

 

13,369

(7)

 

 

 

 

51,192

(8)

 

Cash distributions paid

 

 

 

 

 

 

 

 

 

 

 

13,369

(7)

 

 

 

 

51,192

(8)

 

 

 

(1)

 

See Note 19 to our audited combined and consolidated financial statements included elsewhere in this annual report.

 

(2)

 

As disclosed in Note 1 to our audited combined and consolidated financial statements, on May 12, 2014, the Partnership completed its IPO and issued 9,822,358 common units, 9,822,358 subordinated units and 400,913 general partner units. On September 29, 2014, the Partnership completed a follow-on public offering of 4,500,000 common units. In connection with the offering, the Partnership issued 91,837 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. On June 26, 2015, the Partnership completed a follow-on public offering of 7,500,000 common units. In connection with this offering, the Partnership issued 153,061 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. Earnings per unit is presented for the periods in which the units were outstanding.

 

(3)

 

The operating days for our fleet are the total number of days in a given period that the vessels were in our possession less the total number of days off-hire not recoverable from the insurers. We define days off-hire as days lost to, among other things, operational deficiencies, drydocking for repairs, maintenance or inspection, equipment breakdowns, special surveys and vessel upgrades, delays due to accidents, crew strikes, certain vessel detentions or similar problems, our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew, or periods of commercial waiting time during which we do not earn charter hire.

 

(4)

 

Non-GAAP Financial Measures

     

Partnership Performance Results. As described above, our IFRS Common Control Reported Results are derived from the combined and consolidated financial statements of the Partnership.

     

Our Partnership Performance Results presented below are non-GAAP measures and exclude amounts related to GAS-three Ltd., GAS-four Ltd. and GAS-five Ltd. (the owners of the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney, respectively) for the period prior to the closing of the IPO, GAS-sixteen Ltd. and GAS-seventeen Ltd. (the owners of the Methane Rita Andrea and the Methane Jane Elizabeth, respectively) for the period prior to their transfer to the Partnership on September 29, 2014 and the amounts related to GAS-nineteen Ltd., GAS-twenty Ltd. and GAS-twenty one Ltd. (the owners of the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally, respectively) for the period prior to their transfer to the Partnership on July 1, 2015. While such amounts are reflected in the Partnership’s reported financial statements because the transfers to the Partnership were accounted for as a reorganization of entities under common control under IFRS, (i) GAS-three Ltd., GAS-four Ltd. and GAS-five Ltd. were not owned by the Partnership prior to the closing of the IPO, (ii) GAS-sixteen Ltd. and GAS-seventeen Ltd. were not owned by the Partnership prior to their transfer to the Partnership in September 2014 and (iii) GAS-nineteen Ltd., GAS-twenty Ltd. and GAS-twenty one Ltd. were not owned by the Partnership prior to their transfer to the Partnership in July 2015, and accordingly the Partnership was not entitled to the cash or results generated in the period prior to such transfers.

     

The Partnership Performance Results are non-GAAP financial measures. GasLog Partners believes that these financial measures provide meaningful supplemental information to both management and investors regarding the financial and operating performance of the Partnership because such presentation is consistent with the calculation of the quarterly distribution and the earnings per unit, which similarly exclude the results of vessels prior to their transfer to the Partnership. These non-GAAP financial measures should not be viewed in isolation or as substitutes to the equivalent

4


 

 

 

 

GAAP measures presented in accordance with IFRS, but should be used in conjunction with the most directly comparable IFRS Common Control Reported Results.

     

For the years ended December 31, 2012 and 2013, prior to the Partnership’s incorporation, no results were attributable to the Partnership.

     

Reconciliation of Partnership Performance Results to IFRS Common Control Reported Results in our Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2014

 

Year Ended December 31, 2015

 

Results
attributable
to GasLog

 

Partnership
Performance
Results

 

IFRS
Common
Control
Reported
Results

 

Results
attributable
to GasLog

 

Partnership
Performance
Results

 

IFRS
Common
Control
Reported
Results

 

 

(in thousands of U.S. dollars)

STATEMENT OF PROFIT OR LOSS

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

$

 

92,239

 

 

 

$

 

65,931

 

 

 

$

 

158,170

 

 

 

$

 

30,762

 

 

 

$

 

168,927

 

 

 

$

 

199,689

 

Vessel operating costs

 

 

 

(18,526

)

 

 

 

 

(12,226

)

 

 

 

 

(30,752

)

 

 

 

 

(9,132

)

 

 

 

 

(33,656

)

 

 

 

 

(42,788

)

 

Voyage expenses and commissions

 

 

 

(1,211

)

 

 

 

 

(817

)

 

 

 

 

(2,028

)

 

 

 

 

(340

)

 

 

 

 

(2,102

)

 

 

 

 

(2,442

)

 

Depreciation

 

 

 

(20,579

)

 

 

 

 

(13,352

)

 

 

 

 

(33,931

)

 

 

 

 

(8,272

)

 

 

 

 

(35,981

)

 

 

 

 

(44,253

)

 

General and administrative expenses

 

 

 

(1,791

)

 

 

 

 

(4,591

)

 

 

 

 

(6,382

)

 

 

 

 

(603

)

 

 

 

 

(10,383

)

 

 

 

 

(10,986

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit from operations

 

 

 

50,132

 

 

 

 

34,945

 

 

 

 

85,077

 

 

 

 

12,415

 

 

 

 

86,805

 

 

 

 

99,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial costs

 

 

 

(18,187

)

 

 

 

 

(15,206

)

 

 

 

 

(33,393

)

 

 

 

 

(5,413

)

 

 

 

 

(21,789

)

 

 

 

 

(27,202

)

 

Financial income

 

 

 

17

 

 

 

 

23

 

 

 

 

40

 

 

 

 

2

 

 

 

 

24

 

 

 

 

26

 

Loss on interest rate swaps

 

 

 

(2,860

)

 

 

 

 

(5,218

)

 

 

 

 

(8,078

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expense

 

 

 

(21,030

)

 

 

 

 

(20,401

)

 

 

 

 

(41,431

)

 

 

 

 

(5,411

)

 

 

 

 

(21,765

)

 

 

 

 

(27,176

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

$

 

29,102

 

 

 

$

 

14,544

 

 

 

$

 

43,646

 

 

 

$

 

7,004

 

 

 

$

 

65,040

 

 

 

$

 

72,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

EBITDA and Adjusted EBITDA. We define EBITDA as earnings before interest income and expense, gain/loss on interest rate swaps, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before foreign exchange gains/losses. EBITDA and Adjusted EBITDA which are non-GAAP financial measures, are used as supplemental financial measures by management and external users of financial statements, such as our investors, to assess our operating performance. The Partnership believes that these non-GAAP financial measures assist our management and investors by increasing the comparability of our performance from period to period. The Partnership believes that including EBITDA and Adjusted EBITDA assist our management and investors in (i) understanding and analyzing the results of our operating and business performance, (ii) selecting between investing in us and other investment alternatives and (iii) monitoring our ongoing financial and operational strength in assessing whether to continue to hold our common units. This increased comparability is achieved by excluding the potentially disparate effects between periods of, in the case of EBITDA and Adjusted EBITDA, interest, gains/losses on interest rate swaps, taxes, depreciation and amortization, and in the case of Adjusted EBITDA, foreign exchange gains/losses, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect results of operations between periods.

     

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered alternatives to, or as substitutes for, or superior to profit/(loss), profit/(loss) from operations, earnings per unit or any other measure of operating performance presented in accordance with IFRS. Some of these limitations include the fact that they do not reflect (i) our cash expenditures or future requirements for capital expenditures or contractual commitments, (ii) changes in, or cash requirements for our working capital needs and (iii) the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements.

     

EBITDA and Adjusted EBITDA exclude some, but not all, items that affect profit/(loss) and these measures may vary among other companies. Therefore, EBITDA and Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies. The following tables reconcile EBITDA and Adjusted EBITDA to profit/(loss), the most directly comparable IFRS financial measure, for the periods presented.

     

EBITDA and Adjusted EBITDA are presented on the basis of IFRS Common Control Reported Results and Partnership Performance Results. Partnership Performance Results are non-GAAP measures. The difference between IFRS Common Control Reported Results and Partnership Performance Results are results attributable to GasLog as set out in the reconciliation above.

5


 

Reconciliation of EBITDA and Adjusted EBITDA to Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS Common Control Reported Results
Year ended December 31,

 

Partnership Performance Results
Year ended December 31,

 

2012

 

2013

 

2014

 

2015

 

2012

 

2013

 

2014

 

2015

 

 

(in thousands of U.S. dollars)

(Loss)/Profit for the year

 

 

$

 

 (861

)

 

 

 

$

 

 26,218

 

 

 

$

 

 43,646

 

 

 

$

 

 72,044

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 14,544

 

 

 

$

 

 65,040

 

Financial income

 

 

 

(110

)

 

 

 

 

(32

)

 

 

 

 

(40

)

 

 

 

 

(26

)

 

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

(24

)

 

Financial costs

 

 

 

1

 

 

 

 

12,133

 

 

 

 

33,393

 

 

 

 

27,202

 

 

 

 

 

 

 

 

 

 

 

 

15,206

 

 

 

 

21,789

 

Loss/(gain) on interest rate swaps

 

 

 

940

 

 

 

 

(1,036

)

 

 

 

 

8,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,218

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

12,238

 

 

 

 

33,931

 

 

 

 

44,253

 

 

 

 

 

 

 

 

 

 

 

 

13,352

 

 

 

 

35,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

 

(30

)

 

 

 

 

49,521

 

 

 

 

119,008

 

 

 

 

143,473

 

 

 

 

 

 

 

 

 

 

 

 

48,297

 

 

 

 

122,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange (gains)/losses

 

 

 

(12

)

 

 

 

 

38

 

 

 

 

(133

)

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

(141

)

 

 

 

 

56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

$

 

(42

)

 

 

 

$

 

49,559

 

 

 

$

 

118,875

 

 

 

$

 

143,523

 

 

 

$

 

 

 

 

$

 

 

 

 

$

 

48,156

 

 

 

$

 

122,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

Distributable cash flow. Distributable cash flow means Adjusted EBITDA (Partnership Performance Results), after considering cash interest expense for the period, including realized loss on interest rate swaps and excluding amortization of loan fees, estimated drydocking and replacement capital reserves established by the Partnership. Estimated drydocking and replacement capital reserves represent capital expenditures required to renew and maintain over the long-term the operating capacity of, or the revenue generated by our capital assets. Distributable cash flow, which is a non-GAAP financial measure, is a quantitative standard used by investors in publicly-traded partnerships to assess their ability to make quarterly cash distributions. Our calculation of Distributable cash flow may not be comparable to that reported by other companies.

     

Distributable cash flow has limitations as an analytical tool and should not be considered as an alternative to, or substitute for, or superior to profit/(loss), profit/(loss) from operations, earnings per units or any other measure of operating performance presented in accordance with IFRS.

     

The table below reconciles Distributable cash flow and Cash distributions declared to Adjusted EBITDA (Partnership Performance Results).

     

Reconciliation of Distributable Cash Flow to Profit:

 

 

 

 

 

 

 

Partnership Performance Results
Year ended
December 31,

 

2014

 

2015

 

 

(in thousands of
U.S. dollars)

Adjusted EBITDA (Partnership Performance Results)*

 

 

$

 

48,156

 

 

 

$

 

122,842

 

Cash interest expense including realized loss on swaps and excluding amortization of loan fees

 

 

 

(9,912

)

 

 

 

 

(19,484

)

 

Drydocking capital reserve

 

 

 

(2,621

)

 

 

 

 

(8,338

)

 

Replacement capital reserve

 

 

 

(8,505

)

 

 

 

 

(22,710

)

 

 

 

 

 

 

Distributable cash flow

 

 

 

27,118

 

 

 

 

72,310

 

 

 

 

 

 

Other reserves**

 

 

 

(3,032

)

 

 

 

 

(16,123

)

 

 

 

 

 

 

Cash distributions***

 

 

$

 

24,086

 

 

 

$

 

56,187

 

 

 

 

 

 

 

*

 

See table above for reconciliation of Adjusted EBITDA (Partnership Performance Results) to Profit for the year.

 

**

 

Refers to reserves (other than the drydocking and replacement capital reserves) which have been established for the proper conduct of the business of the Partnership and its subsidiaries (including reserves for future capital expenditures and for anticipated future credit needs of the Partnership and its subsidiaries).

 

***

 

Refers to cash distributions made since the Partnership’s IPO. It excludes payments of dividends due to GasLog before vessels’ drop-down to the Partnership.

 

(5)

 

Does not reflect a distribution of $10.72 million declared in January 2015 in respect of the fourth quarter of 2014. Cash distribution paid includes $9.80 million dividend due to GasLog which was declared in 2013 and excludes $7.85 million dividend due to GasLog which was declared in 2014, in both cases prior to the contribution of the relevant vessels to the Partnership.

 

(6)

 

Does not reflect a distribution of $15.71 million declared in January 2016 in respect of the fourth quarter of 2015. Cash distribution paid includes $7.85 million dividend due to GasLog which was declared in 2014 prior to the contribution of the relevant vessels to the Partnership.

 

(7)

 

Does not reflect a distribution of $10.72 million declared in January 2015 and paid in February 2015, in respect of the fourth quarter of 2014.

 

(8)

 

Does not reflect a distribution of $15.71 million declared in January 2016 and paid in February 2016, in respect of the fourth quarter of 2015.

6


 

B. Capitalization and Indebtedness

The following table sets forth our capitalization as of December 31, 2015:

This information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects”, and our combined and consolidated financial statements and the notes thereto included in “Item 18. Financial Statements”.

 

 

 

 

 

As of
December 31, 2015

 

 

(in thousands
of U.S. dollars)

Debt:(1)

 

 

Borrowings—current portion

 

 

$

 

325,768

 

Borrowings—non-current portion

 

 

 

415,723

 

 

 

 

Total debt

 

 

 

741,491

 

 

 

 

Partners’ Equity:

 

 

Common unitholders: 21,822,358 units issued and outstanding

 

 

 

507,433

 

Subordinated unitholders: 9,822,358 units issued and outstanding

 

 

 

59,786

 

General partner: 645,811 units issued and outstanding

 

 

 

8,842

 

Incentive distribution rights

 

 

 

2,116

 

 

 

 

Total Partners’ Equity

 

 

 

578,177

 

 

 

 

Total capitalization

 

 

$

 

1,319,668

 

 

 

 

 

 

(1)

 

All of our bank debt has been incurred by our vessel owning subsidiaries. Our indebtedness, other than our Sponsor Credit Facility, is secured by mortgages on our owned ships and is guaranteed by the Partnership and an intermediate holding company for the Partnership. The $15.0 million outstanding under the Sponsor Credit Facility provided by GasLog is also included in the non-current debt. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities” for more information about our credit facilities.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Inherent in Our Business

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses to enable us to pay the minimum quarterly distribution on our common units, subordinated units and general partner units.

We may not have sufficient cash from operations to pay the minimum quarterly distribution of $0.375 per unit on our common units, subordinated units and general partner units. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which may fluctuate from quarter to quarter based on the risks described in this section, including, among other things:

 

 

the rates we obtain from our charters;

 

 

the continued availability of natural gas production, liquefaction and regasification facilities;

 

 

the price and demand for natural gas and oil;

 

 

the level of our operating costs, such as the cost of crews, vessel maintenance and insurance;

 

 

the number of off-hire days for our fleet and the timing of, and number of days required for, drydocking of vessels;

 

 

the supply of LNG carriers;

 

 

prevailing global and regional economic and political conditions;

 

 

changes in local income tax rates;

7


 

 

 

currency exchange rate fluctuations; and

 

 

the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business.

In addition, the actual amount of cash available for distribution will depend on other factors, including:

 

 

the level of capital expenditures we make, including for maintaining or replacing vessels and complying with regulations;

 

 

our debt service requirements, including fluctuations in interest rates, and restrictions on distributions contained in our debt instruments;

 

 

the level of debt we will incur to fund future acquisitions, including if we exercise our options to purchase any additional vessels from GasLog;

 

 

fluctuations in our working capital needs;

 

 

our ability to make, and the level of, working capital borrowings; and

 

 

the amount of any cash reserves, including reserves for future maintenance and replacement capital expenditures, working capital and other matters, established by our board of directors, which cash reserves are not subject to any specified maximum dollar amount.

The amount of cash we generate from our operations may differ materially from our profit or loss for a specified period, which will be affected by non-cash items. As a result of this and the other factors mentioned above, we may make cash distributions during periods in which we record losses and may not make cash distributions during periods when we record a profit.

Our ability to grow and to meet our financial needs may be adversely affected by our cash distribution policy.

Our cash distribution policy, which is consistent with our partnership agreement, requires us to distribute all of our available cash (as defined in our partnership agreement) each quarter. Accordingly, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations.

In determining the amount of cash available for distribution, our board of directors approves the amount of cash reserves to set aside, including reserves for future maintenance and replacement capital expenditures, working capital and other matters. We also rely upon external financing sources, including commercial borrowings, to fund our capital expenditures. Accordingly, to the extent we do not have sufficient cash reserves or are unable to obtain financing, our cash distribution policy may significantly impair our ability to meet our financial needs or to grow.

We must make substantial capital expenditures to maintain and expand our fleet, which will reduce cash available for distribution. In addition, each quarter we are required to deduct estimated maintenance and replacement capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance and replacement capital expenditures were deducted.

We must make substantial capital expenditures to maintain and replace, over the long-term, the operating capacity of our fleet. Maintenance and replacement capital expenditures from operating surplus totaled $31.05 million for the year ended December 31, 2015. We estimate that future maintenance and replacement capital expenditures will average approximately $38.74 million per full year, including potential costs related to replacing current vessels at the end of their useful lives. Maintenance and replacement capital expenditures include capital expenditures associated with (i) the removal of a vessel from the water for inspection, maintenance and/or repair of submerged parts (or drydocking) and (ii) modifying an existing vessel or acquiring a new vessel, to the extent these expenditures are incurred to maintain or replace the operating capacity of our fleet. These

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expenditures could vary significantly from quarter to quarter and could increase as a result of changes in:

 

 

the cost of labor and materials;

 

 

customer requirements;

 

 

the size of our fleet;

 

 

the cost of replacement vessels;

 

 

length of charters;

 

 

governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment;

 

 

competitive standards; and

 

 

the age of our ships.

Significant capital expenditures, including to maintain and replace, over the long-term, the operating capacity of our fleet, may reduce or eliminate the amount of cash available for distribution to our unitholders. Our partnership agreement requires our board of directors to deduct estimated, rather than actual, maintenance and replacement capital expenditures from operating surplus each quarter in an effort to reduce fluctuations in operating surplus (as defined in our partnership agreement). The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus is subject to review and change by our conflicts committee at least once a year. In years when estimated maintenance and replacement capital expenditures are higher than actual maintenance and replacement capital expenditures, the amount of cash available for distribution to unitholders will be lower than if actual maintenance and replacement capital expenditures were deducted from operating surplus. If our board of directors underestimates the appropriate level of estimated maintenance and replacement capital expenditures, we may have less cash available for distribution in future periods when actual capital expenditures exceed our previous estimates.

If capital expenditures are financed through cash from operations or by issuing debt or equity securities, our ability to make cash distributions may be diminished, our financial leverage could increase or our unitholders may be diluted.

Use of cash from operations to expand or maintain our fleet will reduce cash available for distribution to unitholders. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering, as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for future capital expenditures could have a material adverse effect on our business, financial condition, results of operations and ability to make cash distributions to our unitholders. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash distributions to unitholders. In addition, incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant unitholder dilution and would increase the aggregate amount of cash required to maintain our current level of quarterly distributions to unitholders, both of which could have a material adverse effect on our ability to make cash distributions.

Any limitation in the availability or operation of our ships could have a material adverse effect on our business, financial condition, results of operations and cash flows, which effect would be amplified by the small size of our fleet.

Our fleet consists of eight LNG carriers that are in operation. If any of our ships is unable to generate revenues for any significant period of time for any reason, including unexpected periods of off-hire or early charter termination (which could result from damage to our ships), our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders, could be materially and adversely affected. The impact of any limitation in the

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operation of our ships or any early charter termination would be amplified during the period prior to acquisition of additional vessels, as a substantial portion of our cash flows and income is dependent on the revenues earned by the chartering of our eight LNG carriers in operation. In addition, the costs of ship repairs are unpredictable and can be substantial. In the event of repair costs that are not covered by our insurance policies, we may have to pay for such repair costs, which would decrease our earnings and cash flows.

Any charter termination could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our charterer has the right to terminate a ship’s time charter in certain circumstances, such as:

 

 

loss of the ship or damage to it beyond repair;

 

 

if the ship is off-hire for any reason other than scheduled drydocking for a period exceeding 90 consecutive days, or for more than 90 days in any one-year period;

 

 

defaults by us in our obligations under the charter; or

 

 

the outbreak of war or hostilities involving two or more major nations, such as the United States or the People’s Republic of China, that would materially and adversely affect the trading of the ship for a period of at least 30 days.

A termination right under one ship’s time charter would not automatically give the charterer the right to terminate its other charter contracts with us. However, a charter termination could materially affect our relationship with the customer and our reputation in the LNG shipping industry, and in some circumstances the event giving rise to the termination right could potentially impact multiple charters. Accordingly, the existence of any right of termination could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

If we lose a charter, we may be unable to obtain a new time charter on terms as favorable to us or with a charterer of comparable standing, particularly if we are seeking new time charters at a time when charter rates in the LNG industry are depressed. Consequently, we may have an increased exposure to the volatile spot market, which is highly competitive and subject to significant price fluctuations. In the event that we are unable to re-deploy a ship for which a charter has been terminated, we will not receive any revenues from that ship, and we may be required to pay expenses necessary to maintain the ship in proper operating condition.

Due to our lack of diversification, adverse developments in the LNG transportation industry could adversely affect our business, particularly if such developments occur at a time when we are seeking a new charter.

We rely exclusively on the cash flow generated from charters for our LNG vessels. Due to our lack of diversification, an adverse development in the LNG transportation industry could have a significantly greater impact on our business, particularly if such developments occur at a time when our ships are not under charter or nearing the end of their charters, than if we maintained more diverse assets or lines of businesses.

We currently derive all of our revenues from a single customer and will continue to depend on one customer for nearly all of our revenues after our expected acquisition of additional vessels from GasLog. This customer was recently acquired by another energy company which could impact our ability to maintain our relationship with this customer. The loss of this customer would result in a significant loss of revenues and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We currently derive all of our revenues from one customer, MSL, a subsidiary of BG Group. Following the expected acquisition of additional vessels from GasLog, MSL will continue to be a key customer, as at least seven of the vessels over which we have options to acquire from GasLog, will be chartered to MSL. In addition, two of the vessels that we will have options to acquire from

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GasLog have been or will be chartered to a subsidiary of Shell. Shell’s acquisition of BG Group is expected to become effective on February 15, 2016. Although MSL’s contractual obligations under the charter agreements are not impacted by the acquisition, we cannot provide assurance that we and GasLog will be able to maintain our business relationship with BG Group following its integration into Shell. In addition, the combination of BG Group and Shell could increase our future customer concentration because all of the vessels we have the right to acquire from GasLog are chartered to subsidiaries of BG Group or Shell. Furthermore, we could lose our customer or the benefits of our time charter arrangements for many different reasons, including if the customer is unable or unwilling to make charter hire or other payments to us because of a deterioration in its financial condition, disagreements with us or otherwise. If our customer terminates its charters, chooses not to re-charter our ships after the initial charter terms or is unable to perform under its charters and we are not able to find replacement charters on similar terms, we will suffer a loss of revenues that could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

We are subject to certain risks with respect to our relationship with GasLog, and failure of GasLog to comply with certain of its financial covenants under its debt instruments could, among other things, limit or prevent us from acquiring future vessels from GasLog, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Certain of GasLog’s existing debt instruments impose operating and financial restrictions on GasLog, including financial maintenance covenants. GasLog’s ability to meet certain operating and financial restrictions in its existing debt instruments is dependent in part on the charter rates which it obtains for its vessels. The current charter rates available for spot/short-term charters of LNG carriers are at historically low levels. Despite this environment, GasLog continues to conclude spot/short term charters for LNG carriers. Additionally, during the course of 2015 GasLog has entered into a number of long-term charters at attractive rates and continues to actively seek charters on its open vessels in the long-term charter market. GasLog is also active in the LNG shipping spot market through its participation in The Cool Pool Limited with Golar LNG Ltd. and Dynagas Ltd. However, if GasLog should fail to enter into additional short-term or long-term charters or should fail to successfully take other steps which would reduce debt service requirements and/or improve EBITDA, it may be required to seek a waiver under its bank credit facilities. GasLog continuously monitors and manages its covenant compliance. Under GasLog’s credit facilities, as is typical with secured credit facilities generally, a default by the borrower permits the lenders to exercise remedies as secured creditors which, if such a default was to occur, could include foreclosing on GasLog vessels. Our future growth, which is expected to be based on the acquisition of vessels from GasLog, would also be adversely affected by such a default event if it was to occur. We are also dependent on GasLog for the provision of administrative, commercial and ship management services.

Additionally, any default by GasLog under its corporate guarantee would result in a default under the loan facility related to the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally.

Our future performance and ability to secure future time charters depends on continued growth in LNG production and demand for LNG and LNG shipping.

Our future performance, including our ability to profitably expand our fleet, will depend on continued growth in LNG production and the demand for LNG and LNG shipping. A complete LNG project includes production, liquefaction, storage, regasification and distribution facilities, in addition to the marine transportation of LNG. Increased infrastructure investment has led to an expansion of LNG production capacity in recent years, but material delays in the construction of new liquefaction facilities could constrain the amount of LNG available for shipping, reducing ship utilization. The rate of growth of the LNG industry has fluctuated due to several factors, including the global economic crisis and continued economic uncertainty, fluctuations in global commodity prices, including natural gas, oil and coal as well as other sources of energy. Continued growth in

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LNG production and demand for LNG and LNG shipping could be negatively affected by a number of factors, including:

 

 

continued low prices for crude oil and petroleum products;

 

 

increases in interest rates or other events that may affect the availability of sufficient financing for LNG projects on commercially reasonable terms;

 

 

increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;

 

 

increases in the production levels of low-cost natural gas in domestic natural gas consuming markets, which could further depress prices for natural gas in those markets and make LNG uneconomical;

 

 

increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new pipeline systems in markets we may serve, or the conversion of existing non-natural gas pipelines to natural gas pipelines in those markets;

 

 

decreases in the consumption of natural gas due to increases in its price, decreases in the price of alternative energy sources or other factors making consumption of natural gas less attractive;

 

 

any significant explosion, spill or other incident involving an LNG facility or carrier;

 

 

infrastructure constraints such as delays in the construction of liquefaction facilities, the inability of project owners or operators to obtain governmental approvals to construct or operate LNG facilities, as well as community or political action group resistance to new LNG infrastructure due to concerns about the environment, safety and terrorism;

 

 

labor or political unrest or military conflicts affecting existing or proposed areas of LNG production or regasification;

 

 

decreases in the price of LNG, which might decrease the expected returns relating to investments in LNG projects;

 

 

new taxes or regulations affecting LNG production or liquefaction that make LNG production less attractive; or

 

 

negative global or regional economic or political conditions, particularly in LNG consuming regions, which could reduce energy consumption or its growth.

In 2015, global crude oil prices were very volatile and fell significantly. Such decline in oil prices since 2014 has depressed natural gas prices and led to a narrowing of the gap in pricing in different geographic regions, which has adversely affected the length of voyages in the spot LNG shipping market and the spot rates and medium term charter rates for charters which commence in the near future. A continued decline in oil prices could adversely affect both the competitiveness of gas as a fuel for power generation and the market price of gas, to the extent that gas prices are benchmarked to the price of crude oil. Some production companies have announced delays or cancellations of certain previously announced LNG projects, which, unless offset by new projects coming on stream, could adversely affect demand for LNG charters over the next few years, while the amount of tonnage available for charter is expected to increase.

All of our ships are currently operating under multi-year contracts, the first of which expires in 2018 unless the charterer exercises its extension option. Unless LNG charter market conditions improve, we may have difficulty in securing renewed or new charters at attractive rates and durations on our ships when such multi-year charters expire. Such a failure could adversely affect our future liquidity, results of operations and cash flows, including cash available for distribution to unitholders, as well as our ability to meet certain of our debt covenants. A sustained decline in charter rates could also adversely affect the market value of our ships, on which certain of the ratios and financial covenants we are required to comply with are based. See “—Risks Inherent in Our Business—Ship values may fluctuate substantially, which could result in an impairment charge, could impact our compliance

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with the covenants in our loan agreements and, if the values are lower at a time when we are attempting to dispose of ships, could cause us to incur a loss.”

A continuation of the recent significant declines in natural gas and oil prices may adversely affect our growth prospects and results of operations.

Natural gas prices are volatile and are affected by numerous factors beyond our control, including but not limited to the following:

 

 

price and availability of crude oil and petroleum products;

 

 

worldwide demand for natural gas;

 

 

the cost of exploration, development, production, transportation and distribution of natural gas;

 

 

expectations regarding future energy prices for both natural gas and other sources of energy;

 

 

the level of worldwide LNG production and exports;

 

 

government laws and regulations, including but not limited to environmental protection laws and regulations;

 

 

local and international political, economic and weather conditions;

 

 

political and military conflicts; and

 

 

the availability and cost of alternative energy sources, including alternate sources of natural gas in gas importing and consuming countries.

Natural gas prices have historically varied substantially between regions. This price disparity between producing and consuming regions supports demand for LNG shipping and any convergence of natural gas prices would adversely affect demand for LNG shipping. In 2015, global crude oil prices were very volatile and fell significantly. Such decline in oil prices since 2014 has depressed natural gas prices and led to a narrowing of the gap in pricing in different geographic regions.

Given the significant global natural gas and crude oil price decline as referenced above, although our vessels are currently all under multi-year committed charters, a continuation of lower natural gas or oil prices or a further decline in natural gas or oil prices may adversely affect our future business, results of operations and financial condition and our ability to make cash distributions, as a result of, among other things:

 

 

a reduction in exploration for or development of new natural gas reserves or projects, or the delay or cancelation of existing projects as energy companies lower their capital expenditures budgets, which may reduce our growth opportunities;

 

 

low oil prices negatively affecting both the competitiveness of natural gas as a fuel for power generation and the market price of natural gas, to the extent that natural gas prices are benchmarked to the price of crude oil;

 

 

lower demand for vessels of the types we own and operate, which may reduce available charter rates and revenue to us upon redeployment of our vessels following expiration or termination of existing contracts or upon the initial chartering of vessels;

 

 

customers potentially seeking to renegotiate or terminate existing vessel contracts, or failing to extend or renew contracts upon expiration;

 

 

the inability or refusal of customers to make charter payments to us due to financial constraints or otherwise; or

 

 

declines in vessel values, which may result in losses to us upon vessel sales or impairment charges against our earnings.

We may have difficulty further expanding our fleet in the future.

We may expand our fleet beyond the vessels we may acquire from GasLog. Our future growth will depend on numerous factors, some of which are beyond our control, including our ability to:

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obtain consents from lenders and charterers with respect to the vessels that we may acquire from GasLog;

 

 

identify attractive ship acquisition opportunities and consummate such acquisitions;

 

 

obtain newbuilding contracts at acceptable prices;

 

 

obtain required equity and debt financing on acceptable terms;

 

 

secure charter arrangements on terms acceptable to our lenders;

 

 

expand our relationships with existing customers and establish new customer relationships;

 

 

recruit and retain additional suitably qualified and experienced seafarers and shore-based employees through GasLog pursuant to the services agreements we have entered into with GasLog;

 

 

continue to meet technical and safety performance standards;

 

 

manage joint ventures; and

 

 

manage the expansion of our operations to integrate the new ships into our fleet.

We may not be successful in executing any future growth plans, and we cannot give any assurances that we will not incur significant expenses and losses in connection with such growth efforts.

We may have difficulty obtaining consents that are necessary to acquire vessels with an existing charter or a financing agreement.

Under the omnibus agreement entered into with GasLog in connection with the IPO, we have certain options and other rights to acquire vessels with existing charters from GasLog. The omnibus agreement provides that our ability to consummate the acquisition of any such vessels from GasLog will be subject to obtaining all relevant consents including governmental authorities and other non-affiliated third parties to those agreements. In particular, with respect to GasLog’s existing vessels, we would need the consent of the existing charterers and lenders. While GasLog will be obligated to use reasonable efforts to obtain any such consents, we cannot assure you that in any particular case the necessary consent will be obtained from the required parties including the governmental authorities and charterer, lender or other entity.

Our future growth depends on our ability to expand relationships with existing customers, establish relationships with new customers and obtain new time charter contracts, for which we will face substantial competition from established companies with significant resources and potential new entrants.

One of our principal objectives is to enter into additional long-term, fixed-rate charters. The process of obtaining charters for LNG carriers is highly competitive and generally involves an intensive screening procedure and competitive bids, which often extends for several months. We believe LNG carrier time charters are awarded based upon a variety of factors relating to the ship and the ship operator, including:

 

 

size, age, technical specifications and condition of the ship;

 

 

efficiency of ship operation;

 

 

LNG shipping experience and quality of ship operations;

 

 

shipping industry relationships and reputation for customer service;

 

 

technical ability and reputation for operation of highly specialized ships;

 

 

quality and experience of officers and crew;

 

 

safety record;

 

 

the ability to finance ships at competitive rates and financial stability generally;

 

 

relationships with shipyards and the ability to get suitable berths;

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construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications; and

 

 

competitiveness of the bid in terms of overall price.

We expect substantial competition for providing marine transportation services for potential LNG projects from a number of experienced companies, including other independent ship owners as well as state-sponsored entities and major energy companies that own and operate LNG carriers and may compete with independent owners by using their fleets to carry LNG for third parties. Some of these competitors have significantly greater financial resources and larger fleets than we or GasLog have. A number of marine transportation companies—including companies with strong reputations and extensive resources and experience—have entered the LNG transportation market in recent years, and there are other ship owners and managers who may also attempt to participate in the LNG market in the future. This increased competition may cause greater price competition for time charters. As a result of these factors, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Hire rates for LNG carriers may fluctuate substantially and are currently below historical average rates. If rates are lower when we are seeking a new charter, our revenues and cash flows may decline.

Our ability from time to time to charter or re-charter any ship at attractive rates will depend on, among other things, the prevailing economic conditions in the LNG industry. Hire rates for LNG carriers may fluctuate over time as a result of changes in the supply-demand balance relating to current and future ship capacity. This supply-demand relationship largely depends on a number of factors outside our control. The LNG charter market is connected to world natural gas prices and energy markets, which we cannot predict. A substantial or extended decline in demand for natural gas or LNG could adversely affect our ability to charter or re-charter our ships at acceptable rates or to acquire and profitably operate new ships. Hire rates for newbuildings are correlated with the price of newbuildings. Hire rates at a time when we may be seeking new charters may be lower than the hire rates at which our ships are currently chartered. If hire rates are lower when we are seeking a new charter, or at the time option extensions are due to be declared, our revenues and cash flows, including cash available for distribution to unitholders, may decline, as we may only be able to enter into new charters at reduced or unprofitable rates or may not be able to re-charter our ship, or we may have to secure a charter in the spot market, where hire rates are more volatile. Prolonged periods of low charter hire rates or low ship utilization could also have a material adverse effect on the value of our assets.

Ship values may fluctuate substantially, which could result in an impairment charge, could impact our compliance with the covenants in our loan agreements and, if the values are lower at a time when we are attempting to dispose of ships, could cause us to incur a loss.

Values for ships can fluctuate substantially over time due to a number of different factors, including:

 

 

prevailing economic conditions in the natural gas and energy markets;

 

 

a substantial or extended decline in demand for LNG;

 

 

the level of worldwide LNG production and exports;

 

 

changes in the supply-demand balance of the global LNG carrier fleet;

 

 

changes in prevailing charter hire rates;

 

 

the physical condition of the ship;

 

 

the size, age and technical specifications of the ship;

 

 

demand for LNG carriers; and

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the cost of retrofitting or modifying existing ships, as a result of technological advances in ship design or equipment, changes in applicable environmental or other regulations or standards, customer requirements or otherwise.

If the market value of our ships declines, we may be required to record an impairment charge in our financial statements, which could adversely affect our results of operations. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Recourses—Critical Accounting Policies—Impairment of Vessels”. Deterioration in market value of our ships may trigger a breach of some of the covenants contained in our credit facilities. If we do breach such covenants and we are unable to remedy the relevant breach, our lenders could accelerate our indebtedness and seek to foreclose on the ships in our fleet securing those credit facilities. In addition, if a charter contract expires or is terminated by the customer, we may be unable to re-deploy the affected ships at attractive rates and, rather than continue to incur costs to maintain and finance them, we may seek to dispose of them. Any foreclosure on our ships, or any disposal by us of a ship at a time when ship prices have fallen, could result in a loss and could materially and adversely affect our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Our ability to obtain additional debt financing for future acquisitions of ships or to refinance our existing debt may depend on the creditworthiness of our charterers and the terms of our future charters.

Our ability to borrow against the ships in our existing fleet and any ships we may acquire in the future largely depends on the value of the ships, which in turn depends in part on charter hire rates and the ability of our charterers to comply with the terms of their charters. The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional ships and to refinance our existing debt as balloon payments come due, or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing or committing to financing on unattractive terms could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders.

Our future capital needs are uncertain and we may need to raise additional funds in the future.

We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need to raise additional capital to maintain, replace and expand the operating capacity of our fleet and fund our operations. Among other things, we hold options to acquire nine LNG carriers from GasLog. We do not currently have financing sources in place to fund the acquisition of any additional vessels. Our future funding requirements will depend on many factors, including the cost and timing of vessel acquisitions, and the cost of retrofitting or modifying existing ships as a result of technological advances in ship design or equipment, changes in applicable environmental or other regulations or standards, customer requirements or otherwise.

We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our unitholders may experience dilution or reduced distributions per unit. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt or pay distributions. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our unitholders. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our fleet expansion plans. Any of these factors could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders.

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Fluctuations in exchange rates and interest rates could result in financial losses for us.

Fluctuations in currency exchange rates and interest rates may have a material impact on our financial performance. We receive virtually all of our revenues in dollars, while some of our operating expenses, including employee costs and certain crew costs, are denominated in euros. As a result, we are exposed to foreign exchange risk. Although we monitor exchange rate fluctuations on a continuous basis, we do not currently hedge movements in currency exchange rates. As a result, there is a risk that currency fluctuations will have a negative effect on our cash flows and results of operations.

In addition, we may be exposed to a market risk relating to fluctuations in interest rates to the extent our credit facilities bear interest costs at a floating rate based on a prevailing market interest rate. Significant increases in the interest rates could adversely affect our cash flows, results of operations and ability to service our debt. Although we use interest rate swaps from time to time to reduce our exposure to interest rate risk, we hedge only a portion of our outstanding indebtedness. There is no assurance that any derivative contracts we enter into in the future will provide adequate protection against adverse changes in interest rates or that our bank counterparties will be able to perform their obligations.

The derivative contracts we may enter into in the future to hedge our exposure to fluctuations in interest rates could result in reductions in our partners’ equity as well as charges against our profit.

We enter into interest rate swaps from time to time for purposes of managing our exposure to fluctuations in interest rates applicable to floating rate indebtedness. As of December 31, 2015, we had no interest rate swaps in place. We terminated three interest rate swaps on November 12, 2014 in connection with our entering into the $450 million credit facility, or our “Partnership Facility”, under the Facility Agreement dated November 12, 2014 among GAS-three Ltd., GAS-four Ltd., GAS-five Ltd., GAS-sixteen Ltd. and GAS-seventeen Ltd. as borrowers, and the financial institutions party thereto, and the related Deed between GasLog Partners and Citibank, N.A., London Branch, dated November 12, 2014. None of the terminated interest rate swaps were designated as a cash flow hedging instrument. The changes in the fair value of the terminated swaps were recognized in our statement of profit or loss. Changes in the fair value of any future derivative contracts that will not qualify for treatment as cash flow hedges for financial reporting purposes would affect, among other things, our profit and earnings per unit and would affect compliance with the market value adjusted net worth covenants in our credit facilities. For future interest rate swaps that are designated as cash flow hedging instruments, the changes in the fair value of the contracts will be recognized in our statement of other comprehensive income as cash flow hedge gains or losses for the period, and could affect compliance with the market value adjusted net worth covenants in our credit facilities.

While we will monitor the credit risks associated with our bank counterparties, there can be no assurance that these counterparties will be able to meet their commitments under any derivative contract. The potential for bank counterparties to default on their obligations under any derivative contracts may be highest when we are most exposed to the fluctuations in interest rates such contracts are designed to hedge, and several or all of such bank counterparties may simultaneously be unable to perform their obligations due to the same events or occurrences in global financial markets.

There is no assurance that our future derivative contracts will provide adequate protection against adverse changes in interest rates or that our bank counterparties will be able to perform their obligations. In addition, as a result of the implementation of new regulation of the swaps markets in the United States, the European Union and elsewhere over the next few years, the cost and availability of interest rate and currency hedges may increase or suitable hedges may not be available.

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Our earnings and business are subject to the credit risk associated with our contractual counterparties.

We will enter into, among other things, time charters and other contracts with our customers, shipbuilding contracts and refund guarantees relating to newbuildings, credit facilities and commitment letters with banks, insurance contracts and interest rate swaps. Such agreements subject us to counterparty credit risk. For example, all of our vessels are chartered to, and we received all of our total revenues for the year ended December 31, 2015 from, MSL, a subsidiary of BG Group.

The ability and willingness of each of our counterparties to perform its obligations under a contract with us will depend upon a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the natural gas and LNG markets and charter hire rates. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which in turn could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Our debt levels may limit our flexibility in obtaining additional financing, pursuing other business opportunities and paying distributions to unitholders.

Our level of debt could have important consequences to us, including the following:

 

 

our ability to obtain additional financing, if necessary, for working capital, capital expenditures, ship acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

 

 

we will need a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to unitholders;

 

 

our debt level may make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our industry or the economy generally;

 

 

our debt level may limit our flexibility in responding to changing business and economic conditions; and

 

 

if we are unable to satisfy the restrictions included in any of our financing agreements or are otherwise in default under any of those agreements, as a result of our debt levels or otherwise, we will not be able to make cash distributions to you, notwithstanding our stated cash distribution policy.

Our ability to service our debt depends upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. As of December 31, 2015, we had an aggregate of $748.0 million of indebtedness outstanding under our credit facilities and the revolving credit facility with GasLog entered into upon consummation of the IPO, or the “Sponsor Credit Facility”, of which $328.0 million is repayable within one year. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources”. The amount repayable within one year includes $305.50 million which is the current portion of one credit facility that we are in discussions to refinance with one or more term loans. We have entered into an underwritten agreement with certain financial institutions to refinance our current debt. Syndication is complete and we are proceeding with documentation. We expect to execute definitive documentation well in advance of the maturity of all associated existing indebtedness.

If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

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Financing agreements containing operating and financial restrictions may restrict our business and financing activities. A failure by us to meet our obligations under our financing agreements would result in an event of default under such credit facilities which could lead to foreclosure on our ships.

The operating and financial restrictions and covenants in our credit facilities and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, the financing agreements may restrict the ability of us and our subsidiaries to:

 

 

incur or guarantee indebtedness;

 

 

change ownership or structure, including mergers, consolidations, liquidations and dissolutions;

 

 

make dividends or distributions;

 

 

make certain negative pledges and grant certain liens;

 

 

sell, transfer, assign or convey assets;

 

 

make certain investments; and

 

 

enter into a new line of business.

In addition, such financing agreements may require us to comply with certain financial ratios and tests, including, among others, maintaining a minimum liquidity, maintaining positive working capital, ensuring that EBITDA exceeds interest payable, any amounts payable for interest rate swap and debt installments calculated on a four quarter rolling average basis, maintaining a minimum collateral value, and maintaining a minimum book equity ratio. Our ability to comply with the restrictions and covenants, including financial ratios and tests, contained in such financing agreements is dependent on future performance and may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired.

If we are unable to comply with the restrictions and covenants in the agreements governing our indebtedness or in current or future debt financing agreements, there could be a default under the terms of those agreements. If a default occurs under these agreements, lenders could terminate their commitments to lend and/or accelerate the outstanding loans and declare all amounts borrowed due and payable. We have pledged our vessels as security for our outstanding indebtedness. If our lenders were to foreclose on our vessels in the event of a default, this may adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. If any of these events occur, we cannot guarantee that our assets will be sufficient to repay in full all of our outstanding indebtedness, and we may be unable to find alternative financing. Even if we could obtain alternative financing, that financing might not be on terms that are favorable or acceptable. Any of these events would adversely affect our ability to make distributions to our unitholders and cause a decline in the market price of our common units. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities”.

Restrictions in our debt agreements may prevent us or our subsidiaries from paying distributions.

The payment of principal and interest on our debt reduces cash available for distribution to us and on our units. In addition, our credit facilities prohibit the payment of distributions upon the occurrence of the following events, among others:

 

 

failure to pay any principal, interest, fees, expenses or other amounts when due;

 

 

breach or lapse of any insurance with respect to vessels securing the facilities;

 

 

breach of certain financial covenants;

 

 

failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;

 

 

default under other indebtedness;

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bankruptcy or insolvency events;

 

 

failure of any representation or warranty to be correct;

 

 

a change of ownership of the borrowers or GasLog Partners Holdings; and

 

 

a material adverse effect.

Furthermore, we expect that our future financing agreements will contain similar provisions. For more information regarding these financing agreements, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities”.

We are a holding company and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make distributions to unitholders.

We are a holding company. Our subsidiaries conduct all of our operations and own all of our operating assets, including our ships. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to pay our obligations and to make distributions to unitholders depends entirely on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, or by the law of its jurisdiction of incorporation which regulates the payment of distributions. If we are unable to obtain funds from our subsidiaries, our board of directors may exercise its discretion not to make distributions to unitholders.

The failure to consummate or integrate acquisitions in a timely and cost-effective manner could have an adverse effect on our financial condition and results of operations.

Acquisitions that expand our fleet are an important component of our strategy. Under the omnibus agreement, we currently have the option to purchase from GasLog: (i) the Solaris and Hull Nos. 2072, 2073, 2102 and 2103 within 36 months after GasLog notifies our board of directors of their acceptance by their charterers, (ii) the GasLog Seattle and the Methane Lydon Volney within 36 months after the closing of our IPO on May 12, 2014 and (iii) the Methane Becki Anne and the Methane Julia Louise within 36 months after the completion of their acquisition by GasLog on March 31, 2015. In each case, our option to purchase is at fair market value as determined pursuant to the omnibus agreement.

In addition, on April 21, 2015, GasLog signed an agreement with MSL for its newbuildings Hull Nos. 2130, 2800 and 2131 to be chartered to MSL upon deliveries in 2018 and 2019 respectively, for average initial terms of approximately 9.5 years. Within 30 days of the commencement of each charter, GasLog will be required to offer us an opportunity to purchase each vessel at fair market value as determined pursuant to the omnibus agreement.

We will not be obligated to purchase any of these vessels at the applicable determined price, and, accordingly, we may not complete the purchase of any of such vessels. Furthermore, even if we are able to agree on a price with GasLog, there are no assurances that we will be able to obtain adequate financing on terms that are acceptable to us. In light of recent instability in the market price of our common units and broader master limited partnership (“MLP”) market volatility, it may be more difficult for us to complete an accretive acquisition.

We believe that other acquisition opportunities may arise from time to time, and any such acquisition could be significant. Any acquisition of a vessel or business may not be profitable at or after the time of acquisition and may not generate cash flow sufficient to justify the investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business, financial condition, results of operations and ability to make cash distributions to our unitholders, including risks that we may:

 

 

fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;

 

 

be unable to attract, hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;

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decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions;

 

 

significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;

 

 

incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or

 

 

incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

In addition, unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we generally inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and reduce our liquidity.

Certain acquisition and investment opportunities may not result in the consummation of a transaction. In addition, we may not be able to obtain acceptable terms for the required financing for any such acquisition or investment that arises. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our common units. Our future acquisitions could present a number of risks, including the risk of incorrect assumptions regarding the future results of acquired vessels or businesses or expected cost reductions or other synergies expected to be realized as a result of acquiring vessels or businesses, the risk of failing to successfully and timely integrate the operations or management of any acquired vessels or businesses and the risk of diverting management’s attention from existing operations or other priorities. We may also be subject to additional costs related to compliance with various international laws in connection with such acquisition. If we fail to consummate and integrate our acquisitions in a timely and cost-effective manner, our business, financial condition, results of operations and cash available for distribution could be adversely affected.

We may experience operational problems with vessels that reduce revenue and increase costs.

LNG carriers are complex and their operations are technically challenging. Marine transportation operations are subject to mechanical risks and problems. Operational problems may lead to loss of revenue or higher than anticipated operating expenses or require additional capital expenditures. Any of these results could harm our business, financial condition, results of operations and ability to make cash distributions to our unitholders.

We depend on GasLog and certain of its subsidiaries to assist us in operating and expanding our businesses and competing in our markets.

We and our operating subsidiaries have entered into various service agreements with GasLog and its subsidiaries, including GasLog LNG Services, pursuant to which GasLog and its subsidiaries will provide to us certain administrative, financial and other services, and provide to our operating subsidiaries substantially all of their crew, technical management services (including vessel maintenance, periodic drydocking, cleaning and painting, performing work required by regulations and human resources and financial services) and other advisory and commercial management services, including the sourcing of new contracts and renewals of existing contracts. Our operational success and ability to execute our growth strategy depend significantly upon the satisfactory performance of these services by GasLog and its subsidiaries. Our business will be harmed if such subsidiaries fail to perform these services satisfactorily or if they stop providing these services to us or our operating subsidiaries.

Our ability to compete for new charters and expand our customer relationships depends largely on our ability to leverage our relationship with GasLog and its reputation and relationships in the shipping industry. If GasLog suffers material damage to its reputation or relationships, it may harm the ability of us or our subsidiaries to:

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renew existing charters upon their expiration;

 

 

obtain new charters;

 

 

successfully interact with shipyards;

 

 

obtain financing on commercially acceptable terms;

 

 

maintain access to capital under the Sponsor Credit Facility; or

 

 

maintain satisfactory relationships with suppliers and other third parties.

If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, financial condition, results of operations and ability to make cash distributions to our unitholders.

The required drydocking of our ships could be more expensive and time consuming than we anticipate, which could adversely affect our results of operations and cash flows.

Drydockings of our ships require significant capital expenditures and result in loss of revenue while our ships are off-hire. Any significant increase in either the number of off-hire days due to such drydockings or in the costs of any repairs carried out during the drydockings could have a material adverse effect on our profitability and our cash flows. We may not be able to accurately predict the time required to drydock any of our ships or any unanticipated problems that may arise. If more than one of our ships is required to be out of service at the same time, or if a ship is drydocked longer than expected or if the cost of repairs during the drydocking is greater than budgeted, our results of operations and our cash flows, including cash available for distribution to unitholders, could be adversely affected. During the year ended December 31, 2015, the drydockings of the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally were completed. The drydockings of the remainder of our vessels are expected to be carried out in 2016 (2 vessels) and 2018 (3 vessels), respectively.

Delays in deliveries of GasLog’s newbuilding vessels could adversely affect our business.

We may expand our fleet by acquiring newly built vessels from GasLog pursuant to the omnibus agreement. The delivery of any newbuildings could be delayed, which would adversely affect our future growth, which is expected to be partly based on the acquisition of vessels from GasLog.

The completion and delivery of newbuildings could be delayed because of:

 

 

quality or engineering problems;

 

 

changes in governmental regulations or maritime self-regulatory organization standards;

 

 

work stoppages or other labor disturbances at the shipyard;

 

 

bankruptcy or other financial crisis of the shipbuilder;

 

 

a backlog of orders at the shipyard;

 

 

political or economic disturbances;

 

 

weather interference or a catastrophic event, such as a major earthquake or fire;

 

 

requests for changes to the original vessel specifications;

 

 

shortages of or delays in the receipt of necessary construction materials, such as steel;

 

 

the inability to finance the construction or conversion of the vessels; or

 

 

the inability to obtain requisite permits or approvals.

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An oversupply of LNG carriers may lead to a reduction in the charter hire rates we are able to obtain when seeking charters in the future which could adversely affect our results of operations and cash flows.

Driven in part by an increase in LNG production capacity, the market supply of LNG carriers has been increasing as a result of the construction of new ships. The development of liquefaction projects in the United States and the anticipated exports beginning in early 2016 has driven significant ordering activity. As of December 31, 2015, the LNG carrier order book totaled 145 vessels, and the delivered fleet stood at 427 vessels. We believe that this and any future expansion of the global LNG carrier fleet may have a negative impact on charter hire rates, ship utilization and ship values, which impact could be amplified if the expansion of LNG production capacity does not keep pace with fleet growth.

If charter hire rates are lower when we are seeking new time charters, our revenues and cash flows, including cash available for distribution to unitholders, may decline.

If an active short-term or spot LNG carrier charter market continues to develop, our revenues and cash flows may become more volatile and may decline following expiration or early termination of our current charter arrangements.

Most shipping requirements for new LNG projects continue to be provided on a multi-year basis, though the level of spot voyages and short-term time charters of less than 12 months in duration has grown in the past few years. If an active short-term or spot charter market continues to develop, we may enter into short-term time charters upon expiration or early termination of our current charters, for any ships for which we have not secured charters, or for any ships we acquire from GasLog. As a result, our revenues and cash flows may become more volatile. In addition, an active short-term or spot charter market may require us to enter into charters based on changing market prices, as opposed to contracts based on fixed rates, which could result in a decrease in our revenues and cash flows, including cash available for distribution to unitholders, if we enter into charters during periods when the market price for shipping LNG is depressed.

Further technological advancements and other innovations affecting LNG carriers could reduce the charter hire rates we are able to obtain when seeking new employment, and this could adversely impact the value of our assets.

The charter rates, asset value and operational life of an LNG carrier are determined by a number of factors, including the ship’s efficiency, operational flexibility and physical life. Efficiency includes speed and fuel economy. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, the ongoing maintenance and the impact of operational stresses on the asset. Ship and engine designs are continually evolving. At such time as newer designs are developed and accepted in the market, these newer vessels may be found to be more efficient or more flexible or have longer physical lives than ours. Competition from these more technologically advanced LNG carriers and the older technology of our steam-powered (“Steam”) vessels (whose charters expire in 2019 and 2020 unless the charterer exercises its extension option), as well as any vessels with older technology which we acquire, could adversely affect our ability to charter or re-charter our ships and the charter hire rates we will be able to secure when we seek to charter or re-charter our ships, and could also reduce the resale value of our ships. This could adversely affect our revenues and cash flows, including cash available for distribution to unitholders.

Risks associated with operating ocean-going ships could affect our business and reputation.

The operation of ocean-going ships carries inherent risks. These risks include the possibility of:

 

 

marine disaster;

 

 

piracy;

 

 

environmental accidents;

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adverse weather conditions;

 

 

grounding, fire, explosions and collisions;

 

 

cargo and property loss or damage;

 

 

business interruptions caused by mechanical failure, human error, war, terrorism, disease and quarantine, or political action in various countries; and

 

 

work stoppages or other labor problems with crew members serving on our ships.

An accident involving any of our owned ships could result in any of the following:

 

 

death or injury to persons, loss of property or environmental damage;

 

 

delays in the delivery of cargo;

 

 

loss of revenues from termination of charter contracts;

 

 

governmental fines, penalties or restrictions on conducting business;

 

 

litigation with our employees, customers or third parties;

 

 

higher insurance rates; and

 

 

damage to our reputation and customer relationships generally.

Any of these results could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Changes in global and regional economic conditions could adversely impact our business, financial condition, results of operations and cash flows.

Weak global or regional economic conditions may negatively impact our business, financial condition, results of operations and cash flows in ways that we cannot predict. Our ability to expand our fleet will be dependent on our ability to obtain financing to fund the acquisition of additional ships. In addition, uncertainty about current and future global economic conditions may cause our customers to defer projects in response to tighter credit, decreased capital availability and declining customer confidence, which may negatively impact the demand for our ships and services and could also result in defaults under our current charters. Global financial markets and economic conditions have been volatile in recent years and remain subject to significant vulnerabilities. In particular, despite recent measures taken by the European Union, concerns persist regarding the debt burden of certain Eurozone countries, including Greece, and their ability to meet future financial obligations and the overall stability of the euro. Furthermore, a tightening of the credit markets may further negatively impact our operations by affecting the solvency of our suppliers or customers, which could lead to disruptions in delivery of supplies such as equipment for conversions, cost increases for supplies, accelerated payments to suppliers, customer bad debts or reduced revenues. Similarly, such market conditions could affect lenders participating in our financing agreements, making them unable to fulfill their commitments and obligations to us. Any reductions in activity owing to such conditions or failure by our customers, suppliers or lenders to meet their contractual obligations to us could adversely affect our business, financial position, results of operations and ability to make cash distributions to our unitholders.

GasLog LNG Services, our vessels’ management company, and a substantial number of its staff are located in Greece. The current economic instability in Greece could disrupt our operations and have an adverse effect on our business. We have sought to minimize this risk and preserve operational stability by carefully developing staff deployment plans, an information technology recovery site, an alternative ship to shore communications plan and funding mechanisms. While we believe these plans, combined with the international nature of our operations, will mitigate the impact of any disruption of operations in Greece, we cannot assure you that these plans will be effective in all circumstances.

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Disruptions in world financial markets could limit our ability to obtain future debt financing or refinance existing debt.

Global financial markets and economic conditions have been disrupted and volatile in recent years. Credit markets as well as the debt and equity capital markets were exceedingly distressed and at certain times in recent years it was difficult to obtain financing and the cost of any available financing increased significantly. If global financial markets and economic conditions significantly deteriorate in the future, we may experience difficulties obtaining financing commitments, including commitments to refinance our existing debt as substantial balloon payments come due under our credit facilities, in the future if lenders are unwilling to extend financing to us or unable to meet their funding obligations due to their own liquidity, capital or solvency issues. As a result, financing may not be available on acceptable terms or at all. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our future obligations as they come due. Our failure to obtain the funds for these capital expenditures could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders. In the absence of available financing, we also may be unable to take advantage of further business opportunities or respond to competitive pressures.

Compliance with safety and other requirements imposed by classification societies may be very costly and may adversely affect our business.

The hull and machinery of every commercial LNG carrier must be classed by a classification society. The classification society certifies that the ship has been built and subsequently maintained in accordance with the applicable rules and regulations of that classification society. Moreover, every ship must comply with all applicable international conventions and the regulations of the ship’s flag state as verified by a classification society. Finally, each ship must successfully undergo periodic surveys, including annual, intermediate and special surveys performed under the classification society’s rules.

If any ship does not maintain its class, it will lose its insurance coverage and be unable to trade, and the ship’s owner will be in breach of relevant covenants under its financing arrangements. Failure to maintain the class of one or more of our ships could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

The LNG shipping industry is subject to substantial environmental and other regulations, which may significantly limit our operations or increase our expenses.

Our operations are materially affected by extensive and changing international, national, state and local environmental laws, regulations, treaties, conventions and standards which are in force in international waters, or in the jurisdictional waters of the countries in which our ships operate and in the countries in which our ships are registered. These requirements include those relating to equipping and operating ships, providing security and minimizing or addressing impacts on the environment from ship operations. We may incur substantial costs in complying with these requirements, including costs for ship modifications and changes in operating procedures. We also could incur substantial costs, including cleanup costs, civil and criminal penalties and sanctions, the suspension or termination of operations and third-party claims as a result of violations of, or liabilities under, such laws and regulations.

In addition, these requirements can affect the resale value or useful lives of our ships, require a reduction in cargo capacity, necessitate ship modifications or operational changes or restrictions or lead to decreased availability of insurance coverage for environmental matters. They could further result in the denial of access to certain jurisdictional waters or ports or detention in certain ports. We are required to obtain governmental approvals and permits to operate our ships. Delays in obtaining such governmental approvals may increase our expenses, and the terms and conditions of such approvals could materially and adversely affect our operations.

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Additional laws and regulations may be adopted that could limit our ability to do business or increase our operating costs, which could materially and adversely affect our business. For example, new or amended legislation relating to ship recycling, sewage systems, emission control (including emissions of greenhouse gases) as well as ballast water treatment and ballast water handling may be adopted. The United States has recently enacted ballast water management system legislation and regulations that require more stringent controls of air and water emissions from ocean-going ships. Such legislation or regulations may require additional capital expenditures or operating expenses (such as increased costs for low-sulfur fuel) in order for us to maintain our ships’ compliance with international and/or national regulations. We also may become subject to additional laws and regulations if we enter new markets or trades.

We also believe that the heightened environmental, quality and security concerns of insurance underwriters, regulators and charterers will generally lead to additional regulatory requirements, including enhanced risk assessment and security requirements, as well as greater inspection and safety requirements on all LNG carriers in the marine transportation market. These requirements are likely to add incremental costs to our operations, and the failure to comply with these requirements may affect the ability of our ships to obtain and, possibly, recover from, insurance or to obtain the required certificates for entry into the different ports where we operate.

Some environmental laws and regulations, such as the U.S. Oil Pollution Act of 1990, or “OPA”, provide for potentially unlimited joint, several and/or strict liability for owners, operators and demise or bareboat charterers for oil pollution and related damages. OPA applies to discharges of any oil from a ship in U.S. waters, including discharges of fuel and lubricants from an LNG carrier, even if the ships do not carry oil as cargo. In addition, many states in the United States bordering a navigable waterway have enacted legislation providing for potentially unlimited strict liability without regard to fault for the discharge of pollutants within their waters. We also are subject to other laws and conventions outside the United States that provide for an owner or operator of LNG carriers to bear strict liability for pollution, such as the Convention on Limitation of Liability for Maritime Claims of 1976, or the “London Convention”.

Some of these laws and conventions, including OPA and the London Convention, may include limitations on liability. However, the limitations may not be applicable in certain circumstances, such as where a spill is caused by a ship owner’s or operator’s intentional or reckless conduct. These limitations are also subject to periodic updates and may otherwise be amended in the future.

Compliance with OPA and other environmental laws and regulations also may result in ship owners and operators incurring increased costs for additional maintenance and inspection requirements, the development of contingency arrangements for potential spills, obtaining mandated insurance coverage and meeting financial responsibility requirements.

Climate change and greenhouse gas restrictions may adversely impact our operations and markets.

Due to concern over the risks of climate change, a number of countries and the International Maritime Organization, or “IMO”, have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from ships. These regulatory measures may include adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Although emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the “Kyoto Protocol”, or any amendments or successor agreements, a new treaty may be adopted in the future that includes additional restrictions on shipping emissions to those already adopted under the International Convention for the Prevention of Marine Pollution from Ships, or the “MARPOL Convention”. Compliance with future changes in laws and regulations relating to climate change could increase the costs of operating and maintaining our ships and could require us to install new emission controls, as well as acquire allowances, pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.

Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also have an effect on

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demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and natural gas in the future or create greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have significant financial and operational adverse impacts on our business that we cannot predict with certainty at this time.

We operate our ships worldwide, which could expose us to political, governmental and economic instability that could harm our business.

Because we operate our ships in the geographic areas where our customers do business, our operations may be affected by political, governmental and economic conditions in the countries where our ships operate or where they are registered. Any disruption caused by these factors could harm our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders. In particular, our ships frequent LNG terminals in countries including Egypt, Equatorial Guinea and Trinidad, as well as transit through the Gulf of Aden and the Strait of Malacca. Economic, political and governmental conditions in these and other regions have from time to time resulted in military conflicts, terrorism, attacks on ships, mining of waterways, piracy and other efforts to disrupt shipping. Future hostilities or other political instability in the geographic regions where we operate or may operate could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders. In addition, our business could also be harmed by tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries in the Middle East, Southeast Asia or elsewhere as a result of terrorist attacks, hostilities or diplomatic or political pressures that limit trading activities with those countries.

Our insurance may be insufficient to cover losses that may occur to our property or result from our operations which could adversely affect our results of operations and cash flows.

The operation of any ship includes risks such as mechanical failure, personal injury, collision, fire, contact with floating objects, property loss or damage, cargo loss or damage and business interruption due to a number of reasons, including political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of a marine disaster, including explosion, spills and other environmental mishaps, and other liabilities arising from owning, operating or managing ships in international trade. Although we carry protection and indemnity, hull and machinery and loss of hire insurance covering our ships consistent with industry standards, we can give no assurance that we are adequately insured against all risks or that our insurers will pay a particular claim. We also may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. Even if our insurance coverage is adequate to cover our losses, we may not be able to obtain a timely replacement ship in the event of a loss of a ship. Any uninsured or underinsured loss could harm our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

In addition, some of our insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims exceed association reserves.

Terrorist attacks, international hostilities and piracy could adversely affect our business, financial condition, results of operations and cash flows.

Terrorist attacks, piracy and the current conflicts in the Middle East, and other current and future conflicts, may adversely affect our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders. The continuing hostilities in the Middle East may lead to additional acts of terrorism, further regional conflicts, other armed actions around the world and civil disturbance in the United States or elsewhere, which may contribute to further instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us, or at all.

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In the past, political conflicts have also resulted in attacks on ships, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected ships trading in regions such as the South China Sea and the Gulf of Aden. Since 2008, the frequency of piracy incidents against commercial shipping vessels has increased significantly, particularly in the Gulf of Aden and off the coast of Somalia. Any terrorist attacks targeted at ships may in the future negatively materially affect our business, financial condition, results of operations and cash flows and could directly impact our ships or our customers.

We currently employ armed guards onboard certain vessels operating in areas that may be prone to hijacking or terrorist attacks. The presence of armed guards may increase the risk of damage, injury or loss of life in connection with any attacks on our vessels, in addition to increasing crew costs.

We may not be adequately insured to cover losses from acts of terrorism, piracy, regional conflicts and other armed actions, including losses relating to the employment of armed guards.

LNG facilities, shipyards, ships, pipelines and gas fields could be targets of future terrorist attacks or piracy. Any such attacks could lead to, among other things, bodily injury or loss of life, as well as damage to the ships or other property, increased ship operating costs, including insurance costs, reductions in the supply of LNG and the inability to transport LNG to or from certain locations. Terrorist attacks, war or other events beyond our control that adversely affect the production, storage or transportation of LNG to be shipped by us could entitle our customers to terminate our charter contracts in certain circumstances, which would harm our cash flows and our business.

Terrorist attacks, or the perception that LNG facilities and LNG carriers are potential terrorist targets, could materially and adversely affect expansion of LNG infrastructure and the continued supply of LNG. Concern that LNG facilities may be targeted for attack by terrorists has contributed significantly to local community and environmental group resistance to the construction of a number of LNG facilities, primarily in North America. If a terrorist incident involving an LNG facility or LNG carrier did occur, in addition to the possible effects identified in the previous paragraph, the incident may adversely affect the construction of additional LNG facilities and could lead to the temporary or permanent closing of various LNG facilities currently in operation.

A cyber-attack could materially disrupt the Partnership’s business.

The Partnership relies on information technology systems and networks, the majority of which are provided by GasLog, in its operations and administration of its business. The Partnership’s business operations, or those of GasLog, could be targeted by individuals or groups seeking to sabotage or disrupt the Partnership’s or GasLog’s information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt the Partnership’s operations, including the safety of its operations, or lead to unauthorized release of information or alteration of information on its systems. Any such attack or other breach of the Partnership’s information technology systems could have a material adverse effect on the Partnership’s business and results of operations.

GasLog may on our behalf be unable to attract and retain qualified, skilled employees or crew necessary to operate our business or may pay substantially increased costs for its employees and crew.

Our success will depend in large part on GasLog’s ability to attract, hire, train and retain highly skilled and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. Competition to attract, hire, train and retain qualified crew members is intense, and crew manning costs continue to increase. If we are not able to increase our hire rates to compensate for any crew cost increases, our business, financial condition, results of operations and ability to make cash distributions to our unitholders may be adversely affected. Any inability we experience in the future to attract, hire, train and retain a

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sufficient number of qualified employees could impair our ability to manage, maintain and grow our business.

In the future, the ships we own could be required to call on ports located in countries that are subject to restrictions imposed by the United States and other governments.

The United States and other governments and their agencies impose sanctions and embargoes on certain countries and maintain lists of countries they consider to be state sponsors of terrorism. For example, in 2010, the United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or “CISADA”, which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA expanded the application of the prohibitions imposed by the U.S. government to non-U.S. companies, such as us, and limits the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products, as well as LNG.

In 2012, President Obama signed Executive Order 13608, which prohibits foreign persons from violating or attempting to violate, or causing a violation of, any sanctions in effect against Iran, or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. The Secretary of the Treasury may prohibit any transactions or dealings, including any U.S. capital markets financing, involving any person found to be in violation of Executive Order 13608. Also in 2012, the U.S. enacted the Iran Threat Reduction and Syria Human Rights Act of 2012, or the “ITRA”, which created new sanctions and strengthened existing sanctions. Among other things, the ITRA intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical sector. The ITRA also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of such person’s vessels from U.S. ports for up to two years. The ITRA also includes a requirement that issuers of securities must disclose to the SEC in their annual and quarterly reports filed after February 6, 2013 whether the issuer or “any affiliate” has “knowingly” engaged in certain sanctioned activities involving Iran during the timeframe covered by the report. Finally, in January 2013, the U.S. enacted the Iran Freedom and Counter-Proliferation Act of 2012 or the “IFCA”, which expanded the scope of U.S. sanctions on any person that is part of Iran’s energy, shipping or shipbuilding sector and operators of ports in Iran, and imposes penalties on any person who facilitates or otherwise knowingly provides significant financial, material or other support to these entities.

On January 16, 2016, the United States suspended certain sanctions against Iran applicable to non-U.S. companies, such as us, pursuant to the nuclear agreement reached between Iran, China, France, Germany, Russia, the United Kingdom, the United States and the European Union. To implement these changes, beginning on January 16, 2016, the United States waived enforcement of many of the sanctions against Iran’s energy and petrochemical sectors described above, among other things, including certain provisions of CISADA, ITRA, and IFCA. While non-U.S. companies may now engage in certain business or trade with Iran that was previously prohibited, the U.S. has the ability to reimpose sanctions against Iran if, in the future, Iran does not comply with its obligations under the nuclear agreement.

Although the ships we own have not called on ports in countries subject to sanctions or embargoes or in countries identified as state sponsors of terrorism, including Iran, North Korea and Syria, we cannot assure you that these ships will not call on ports in these countries in the future. While we intend to maintain compliance with all sanctions and embargoes applicable to us, U.S. and international sanctions and embargo laws and regulations do not necessarily apply to the same

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countries or proscribe the same activities, which may make compliance difficult. Additionally, the scope of certain laws may be unclear, and these laws may be subject to changing interpretations and application and may be amended or strengthened from time to time, including by adding or removing countries from the proscribed lists. Violations of sanctions and embargo laws and regulations could result in fines or other penalties and could result in some investors deciding, or being required, to divest their investment, or not to invest, in us.

Failure to comply with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.

We operate our ships worldwide, requiring our ships to trade in countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the “FCPA”, and the Bribery Act 2010 of the United Kingdom or the “UK Bribery Act”. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA and the UK Bribery Act. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

Reliability of suppliers may limit our ability to obtain supplies and services when needed.

We rely, and will in the future rely, on a significant supply of consumables, spare parts and equipment to operate, maintain, repair and upgrade our fleet of ships. Delays in delivery or unavailability of supplies could result in off-hire days due to consequent delays in the repair and maintenance of our fleet. This would negatively impact our revenues and cash flows. Cost increases could also negatively impact our future operations, although the impact of significant cost increases may be mitigated to some extent with respect to the vessels that are employed under charter contracts with automatic periodic adjustment provisions or cost review provisions.

Governments could requisition our ships during a period of war or emergency, resulting in loss of earnings.

The government of a jurisdiction where one or more of our ships are registered could requisition for title or seize our ships. Requisition for title occurs when a government takes control of a ship and becomes its owner. Also, a government could requisition our ships for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency, although governments may elect to requisition ships in other circumstances. Although we would expect to be entitled to government compensation in the event of a requisition of one or more of our ships, the amount and timing of payments, if any, would be uncertain. A government requisition of one or more of our ships would result in off-hire days under our time charters and may cause us to breach covenants in certain of our credit facilities, and could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Maritime claimants could arrest our ships, which could interrupt our cash flows.

Crew members, suppliers of goods and services to a ship, shippers or receivers of cargo and other parties may be entitled to a maritime lien against a ship for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a ship. The

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arrest or attachment of one or more of our ships which is not timely discharged could cause us to default on a charter or breach covenants in certain of our credit facilities and, to the extent such arrest or attachment is not covered by our protection and indemnity insurance, could require us to pay large sums of money to have the arrest or attachment lifted. Any of these occurrences could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Additionally, in some jurisdictions, such as the Republic of South Africa, under the “sister ship” theory of liability, a claimant may arrest both the ship that is subject to the claimant’s maritime lien and any “associated” ship, which is any ship owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one ship in our fleet for claims relating to another of our ships.

We may be subject to litigation that could have an adverse effect on us.

We may in the future be involved from time to time in litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, toxic tort claims, employment matters and governmental claims for taxes or duties, as well as other litigation that arises in the ordinary course of our business. We cannot predict with certainty the outcome of any claim or other litigation matter. The ultimate outcome of any litigation matter and the potential costs associated with prosecuting or defending such lawsuits, including the diversion of management’s attention to these matters, could have an adverse effect on us and, in the event of litigation that could reasonably be expected to have a material adverse effect on us, could lead to an event of default under certain of our credit facilities.

Risks Inherent in an Investment in Us

GasLog and its affiliates may compete with us.

Pursuant to the omnibus agreement between us and GasLog, GasLog and its controlled affiliates (other than us, our general partner and our subsidiaries) generally have agreed not to acquire, own, operate or charter certain LNG carriers operating under charters of five full years or more. The omnibus agreement, however, contains significant exceptions that may allow GasLog or any of its controlled affiliates to compete with us, which could harm our business. For example, these exceptions result in GasLog not being restricted from: acquiring, owning, operating or chartering Non-Five-Year Vessels; acquiring a non-controlling equity ownership, voting or profit participation interest in any company, business or pool of assets; acquiring, owning, operating or chartering a Five-Year Vessel that GasLog would otherwise be restricted from owning if we are not willing or able to acquire such vessel from GasLog within the periods set forth in the omnibus agreement; or owning or operating any Five-Year Vessel that GasLog owns on the closing date of the IPO and that was not part of our fleet as of such date. See “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions—Omnibus Agreement—Noncompetition” for a detailed description of those exceptions and the definitions of “Five-Year Vessel” and “Non-Five-Year Vessel”.

Unitholders have limited voting rights, and our partnership agreement restricts the voting rights of unitholders owning more than 4.9% of our common units.

Unlike the holders of common stock in a corporation, holders of common units have only limited voting rights on matters affecting our business. We will hold a meeting of the limited partners every year to elect one or more members of our board of directors and to vote on any other matters that are properly brought before the meeting. Our general partner has appointed four of our seven directors and the common unitholders elected the remaining three directors at our 2015 annual meeting. Five of our directors meet the independence standards of the New York Stock Exchange, or the “NYSE”, and three of the five also qualify as independent of GasLog under our partnership agreement, so as to be eligible for membership on our conflicts committee. If our general partner exercises its right to transfer the power to elect a majority of our directors to the

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common unitholders, an additional director will thereafter be elected by our common unitholders. Our general partner may exercise this right in order to permit us to claim, or continue to claim, an exemption from U.S. federal income tax under Section 883 of the U.S. Internal Revenue Code of 1986, as amended, or the “Code”. See “Item 4. Information on the Partnership—B. Business Overview—Taxation of the Partnership”.

The partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management. Unitholders have no right to elect our general partner, and our general partner may not be removed except by a vote of the holders of at least 662/3% of the outstanding common and subordinated units, including any units owned by our general partner and its affiliates, voting together as a single class.

Our partnership agreement further restricts unitholders’ voting rights by providing that if any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board of directors), determining the presence of a quorum or for other similar purposes, unless required by law.

Effectively, this means that the voting rights of any unitholders not entitled to vote on a specific matter will be redistributed pro rata among the other common unitholders. Our general partner, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to the 4.9% limitation, except with respect to voting their common units in the election of the elected directors.

GasLog and our general partner own a controlling interest in us and have conflicts of interest and limited fiduciary and contractual duties to us and our common unitholders, which may permit them to favor their own interests to your detriment.

GasLog currently owns limited partnership units representing a 30.9% partnership interest and a 2.0% general partner interest in us, and owns and controls our general partner. In addition, our general partner has the right to appoint four of seven, or a majority, of our directors. Certain of our directors and officers are directors and officers of GasLog or its affiliates, and, as such, they have fiduciary duties to GasLog or its affiliates that may cause them to pursue business strategies that disproportionately benefit GasLog or its affiliates or which otherwise are not in the best interests of us or our unitholders. Conflicts of interest may arise between GasLog and its affiliates (including our general partner), on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner and its affiliates may favor their own interests over the interests of our unitholders. See “—Our partnership agreement limits our general partner’s and our directors’ fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner or our directors”. These conflicts include, among others, the following situations:

 

 

neither our partnership agreement nor any other agreement requires our general partner or GasLog or its affiliates to pursue a business strategy that favors us or utilizes our assets, and GasLog’s officers and directors have a fiduciary duty to make decisions in the best interests of the shareholders of GasLog, which may be contrary to our interests;

 

 

our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. Specifically, our general partner will be considered to be acting in its individual capacity if it exercises its call right, pre-emptive rights or registration rights, consents or withholds consent to any merger or consolidation of the partnership, appoints any directors or votes for the election of any director, votes or refrains from voting on amendments to our partnership agreement that require a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our partnership agreement) or refrains from transferring its units or general partner interest or votes upon the dissolution of the partnership;

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under our partnership agreement, as permitted under Marshall Islands law, our general partner and our directors have limited fiduciary duties. The partnership agreement also restricts the remedies available to our unitholders; as a result of purchasing common units, unitholders are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner and our directors, all as set forth in the partnership agreement;

 

 

our general partner is entitled to reimbursement of all reasonable costs incurred by it and its affiliates for our benefit;

 

 

our partnership agreement does not restrict us from paying our general partner or its affiliates for any services rendered to us on terms that are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf;

 

 

our general partner may exercise its right to call and purchase our common units if it and its affiliates own more than 80% of our common units; and

 

 

our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of its limited call right.

Even if our general partner relinquishes the power to elect one director to the common unitholders, so that they will elect a majority of our directors, our general partner will have substantial influence on decisions made by our board of directors. See “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions”.

Our officers face conflicts in the allocation of their time to our business.

Our officers are all employed by GasLog or its applicable affiliate and are performing executive officer functions for us pursuant to the administrative services agreement. Our officers, with the exception of our Chief Executive Officer (“CEO”), Andrew J. Orekar, are not required to work full-time on our affairs and also perform services for affiliates of our general partner (including GasLog). As a result, there could be material competition for the time and effort of our officers who also provide services to our general partner’s affiliates, which could have a material adverse effect on our business, results of operations and financial condition. See “Item 6. Directors, Senior Management and Employees”.

Our partnership agreement limits our general partner’s and our directors’ fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner or our directors.

Under the partnership agreement, our general partner has delegated to our board of directors the authority to oversee and direct our operations, management and policies on an exclusive basis, and such delegation will be binding on any successor general partner of the partnership. Our partnership agreement also contains provisions that reduce the standards to which our general partner and directors would otherwise be held by Marshall Islands law. For example, our partnership agreement:

 

 

permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. Where our partnership agreement permits, our general partner may consider only the interests and factors that it desires, and in such cases it has no fiduciary duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our unitholders. Decisions made by our general partner in its individual capacity will be made by its sole owner, GasLog. Specifically, pursuant to our partnership agreement, our general partner will be considered to be acting in its individual capacity if it exercises its call right, pre-emptive rights or registration rights, consents or withholds consent to any merger or consolidation of the partnership, appoints any directors or votes for the election of any director, votes or refrains from voting on amendments to our partnership agreement that require a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our partnership agreement) or

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refrains from transferring its units or general partner interest or votes upon the dissolution of the partnership;

 

 

provides that our general partner and our directors are entitled to make other decisions in “good faith” if they reasonably believe that the decision is in our best interests;

 

 

generally provides that transactions with our affiliates and resolutions of conflicts of interest not approved by the conflicts committee of our board of directors and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable”, our board of directors may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and

 

 

provides that neither our general partner nor our officers or directors will be liable for monetary damages to us, our limited partners or assignees for any acts or omissions, unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or our officers or directors or those other persons engaged in actual fraud or willful misconduct.

In order to become a limited partner of our partnership, a common unitholder is required to agree to be bound by the provisions in the partnership agreement, including the provisions discussed above.

Fees and cost reimbursements, which GasLog or its applicable affiliate will determine for services provided to us and our subsidiaries, will be substantial, will likely be higher for future periods than reflected in our results of operations for the year ended December 31, 2015, will be payable regardless of our profitability and will reduce our cash available for distribution to you.

Pursuant to the ship management agreements, our subsidiaries pay fees for services provided to them by GasLog LNG Services, and reimburses GasLog LNG Services for all expenses incurred on their behalf. These fees and expenses include all costs and expenses incurred in providing the crew and technical management of the vessels in our fleet to our subsidiaries. In addition, our operating subsidiaries pay GasLog LNG Services a fixed management fee for costs and expenses incurred in connection with providing these services to our operating subsidiaries.

Pursuant to an administrative services agreement, GasLog provides us with certain administrative services. We pay a fixed fee to GasLog for its reasonable costs and expenses incurred in connection with the provision of the services under the administrative services agreement.

Pursuant to the commercial management agreements, GasLog provides us with commercial management services. We pay to GasLog a fixed commercial management fee in U.S. dollars for costs and expenses incurred in connection with providing services.

For a description of the ship management agreements, commercial management agreements and the administrative services agreement, see “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions”. The aggregate fees and expenses payable for services under the ship management agreements, commercial management agreements and administrative services agreement for the year ended December 31, 2015 were $3.59 million, $ 2.34 million and $3.82 million, respectively. As these amounts represent fees and expenses relating to the five vessels acquired from GasLog in 2014, and the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally since their acquisition from GasLog in July 2015, the fees and expenses payable pursuant to these agreements will likely be higher for future periods than reflected in our results of operations for the year ended December 31, 2015. Additionally, these fees and expenses will be payable without regard to our business, results of operation and financial condition. The payment of fees to and the reimbursement of expenses of GasLog or its applicable affiliate, including GasLog LNG Services, could adversely affect our ability to pay cash distributions to you.

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Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove our current management or our general partner, and even if public unitholders are dissatisfied, they are unable to remove our general partner without GasLog’s consent, unless GasLog’s ownership interest in us is decreased, all of which could diminish the trading price of our common units.

Our partnership agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove our current management or our general partner.

 

 

The unitholders are unable to remove our general partner without its consent because our general partner and GasLog own sufficient units to be able to prevent its removal. The vote of the holders of at least 662/3% of all outstanding common and subordinated units voting together as a single class is required to remove the general partner; GasLog owns 31.55% of the outstanding common and subordinated units.

 

 

If our general partner is removed without “cause” during the subordination period and units held by our general partner and GasLog are not voted in favor of that removal, all remaining subordinated units will automatically convert into common units, any existing arrearages on the common units will be extinguished, and our general partner will have the right to convert its general partner interest and the holders of the incentive distribution rights will have the right to convert such incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of those interests at the time. A removal of our general partner under these circumstances would adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met certain distribution and performance tests. Any conversion of the general partner interest or incentive distribution rights would be dilutive to existing unitholders. Furthermore, any cash payment in lieu of such conversion could be prohibitively expensive. “Cause” is narrowly defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor business decisions, such as charges of poor management of our business by the directors appointed by our general partner. Therefore, the removal of our general partner because of the unitholders’ dissatisfaction with the general partner’s decisions in this regard would most likely result in the termination of the subordination period.

 

 

Common unitholders are entitled to elect only three of the seven members of our board of directors. Our general partner, by virtue of its general partner interest, in its sole discretion appoints the remaining directors (subject to its right to transfer the power to elect a majority of our directors to the common unitholders).

 

 

The election of the directors by common unitholders is staggered, meaning that the members of only one of three classes of our elected directors will be selected each year. In addition, the directors appointed by our general partner will serve for terms determined by our general partner.

 

 

Our partnership agreement contains provisions limiting the ability of unitholders to call meetings of unitholders, to nominate directors and to acquire information about our operations as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.

 

 

Unitholders’ voting rights are further restricted by the partnership agreement provision providing that if any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board of directors), determining the presence of a quorum or for other similar purposes, unless required by law. Effectively, this means that the voting rights of any such unitholders in excess of 4.9% will be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote.

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Our general partner, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to this 4.9% limitation, except with respect to voting their common units in the election of the elected directors.

 

 

There are no restrictions in our partnership agreement on our ability to issue equity securities.

The effect of these provisions may be to diminish the price at which the common units will trade.

The control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. In addition, our partnership agreement does not restrict the ability of the members of our general partner from transferring their respective membership interests in our general partner to a third party.

Substantial future sales of our common units in the public market could cause the price of our common units to fall.

We have granted registration rights to GasLog and certain of its affiliates. These unitholders have the right, subject to some conditions, to require us to file registration statements covering any of our common, subordinated or other equity securities owned by them or to include those securities in registration statements that we may file for ourselves or other unitholders. As of February 11, 2016, GasLog owns 162,358 common units and 9,822,358 subordinated units and all of the incentive distribution rights. Following their registration and sale under the applicable registration statement, those securities will become freely tradable. By exercising their registration rights and selling a large number of common units or other securities, these unitholders could cause the price of our common units to decline.

GasLog, as the holder of all of the incentive distribution rights, may elect to cause us to issue additional common units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights without the approval of the conflicts committee of our board of directors or holders of our common units and subordinated units. This may result in lower distributions to holders of our common units in certain situations.

GasLog, as the holder of all of the incentive distribution rights, has the right, at a time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48.0%) for each of the prior four consecutive fiscal quarters, to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. Following a reset election by GasLog, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two fiscal quarters immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”), and the target distribution levels will be reset to correspondingly higher levels based on the same percentage increases above the reset minimum quarterly distribution amount.

In connection with resetting these target distribution levels, GasLog will be entitled to receive a number of common units equal to that number of common units whose aggregate quarterly cash distributions equaled the average of the distributions to it on the incentive distribution rights in the prior two quarters. We anticipate that GasLog would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion; however, it is possible that GasLog could exercise this reset election at a time when it is experiencing, or may be expected to experience, declines in the cash distributions it receives related to its incentive distribution rights and may therefore desire to be issued our common units, rather than retain the right to receive incentive distributions based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise received had we not issued additional common units to GasLog in connection with resetting the target

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distribution levels related to GasLog’s incentive distribution rights. See “Item 8. Financial Information—Our Cash Distribution Policy—Incentive Distribution Rights”.

We may issue additional equity securities, including securities senior to the common units, without your approval, which would dilute your ownership interests.

We may, without the approval of our unitholders, issue an unlimited number of additional units or other equity securities. In addition, we may issue an unlimited number of units that are senior to the common units in right of distribution, liquidation and voting. The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:

 

 

our unitholders’ proportionate ownership interest in us will decrease;

 

 

the amount of cash available for distribution on each unit may decrease;

 

 

because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

 

 

the relative voting strength of each previously outstanding unit may be diminished; and

 

 

the market price of the common units may decline.

Upon the expiration of the subordination period, the subordinated units will convert into common units and will then participate pro rata with other common units in distributions of available cash.

During the subordination period, the common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution of $0.375 per unit, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. Distribution arrearages do not accrue on the subordinated units. The purpose of the subordinated units is to increase the likelihood that during the subordination period there will be available cash from operating surplus to be distributed on the common units. Upon the expiration of the subordination period, the subordinated units will convert into common units and will then participate pro rata with other common units in distributions of available cash. See “Item 8. Financial Information—Our Cash Distribution Policy—Subordination Period”.

In establishing cash reserves, our board of directors may reduce the amount of cash available for distribution to you.

Our partnership agreement requires our board of directors to deduct from operating surplus cash reserves that it determines are necessary to fund our future operating expenditures. These reserves also will affect the amount of cash available for distribution to our unitholders and they are not subject to any specified maximum dollar amount. Our board of directors may establish reserves for distributions on the subordinated units, but only if those reserves will not prevent us from distributing the full minimum quarterly distribution, plus any arrearages, on the common units for the following four quarters. As described above in “—Risks Inherent in Our Business—We must make substantial capital expenditures to maintain and replace the operating capacity of our fleet, which will reduce cash available for distribution. In addition, each quarter we are required to deduct estimated maintenance and replacement capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance and replacement capital expenditures were deducted”, our partnership agreement requires our board of directors each quarter to deduct from operating surplus estimated maintenance and replacement capital expenditures, as opposed to actual maintenance and replacement capital expenditures, which could reduce the amount of available cash for distribution. The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus is subject to review and change by our board of directors at least once a year, provided that any change must be approved by the conflicts committee of our board of directors.

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Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than the then-current market price of our common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this limited call right. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. GasLog, which owns and controls our general partner, owns 0.74% of our common units. At the end of the subordination period, assuming no additional issuances of common units and the conversion of our subordinated units into common units, GasLog will own 31.55% of our common units.

You may not have limited liability if a court finds that unitholder action constitutes control of our business.

As a limited partner in a partnership organized under the laws of the Marshall Islands, you could be held liable for our obligations to the same extent as a general partner if you participate in the “control” of our business. Our general partner generally has unlimited liability for the obligations of the partnership, such as its debts and environmental liabilities, except for those contractual obligations of the partnership that are expressly made without recourse to our general partner. In addition, the limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some jurisdictions in which we do business.

We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.

Our partnership agreement allows us to make working capital borrowings to pay distributions. Accordingly, if we have available borrowing capacity, we can make distributions on all our units even though cash generated by our operations may not be sufficient to pay such distributions. Any working capital borrowings by us to make distributions will reduce the amount of working capital borrowings we can make for operating our business. For more information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities”.

The price of our common units may be volatile.

The price of our common units may be volatile and may fluctuate due to factors including:

 

 

our payment of cash distributions to our unitholders;

 

 

actual or anticipated fluctuations in quarterly and annual results;

 

 

fluctuations in the seaborne transportation industry, including fluctuations in the LNG carrier market;

 

 

mergers and strategic alliances in the shipping industry;

 

 

changes in governmental regulations or maritime self-regulatory organizations standards;

 

 

shortfalls in our operating results from levels forecasted by securities analysts;

 

 

announcements concerning us or our competitors;

 

 

the failure of securities analysts to publish research about us, or analysts making changes in their financial estimates;

 

 

general economic conditions;

 

 

terrorist acts;

 

 

future sales of our units or other securities;

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investors’ perceptions of us and the LNG shipping industry;

 

 

the general state of the securities markets; and

 

 

other developments affecting us, our industry or our competitors.

Securities markets worldwide are experiencing significant price and volume fluctuations. The market price for our common units may also be volatile. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common units despite our operating performance.

Increases in interest rates may cause the market price of our common units to decline.

An increase in interest rates may cause a corresponding decline in demand for equity investments in general, and in particular for yield-based equity investments such as our common units. Any such increase in interest rates or reduction in demand for our common units resulting from other relatively more attractive investment opportunities may cause the trading price of our common units to decline.

Unitholders may have liability to repay distributions.

Under some circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under the Marshall Islands Limited Partnership Act, or the “Marshall Islands Act”, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Marshall Islands law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Marshall Islands law will be liable to the limited partnership for the distribution amount. Assignees who become substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the assignee at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common units less attractive to investors.

We are an “emerging growth company”, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”. We have elected to opt out of the extended transition period for complying with new or revised accounting standards under Section 107(b) of the JOBS Act and such election is irrevocable. We cannot predict if investors will find our common units less attractive because we may rely on these exemptions. If some investors find our common units less attractive as a result, there may be a less active trading market for our common units and our unit price may be more volatile.

In addition, under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for so long as we are an emerging growth company. For as long as we take advantage of the reduced reporting obligations, the information that we provide unitholders may be different than information provided by other public companies.

We have been organized as a limited partnership under the laws of the Marshall Islands, which does not have a well-developed body of partnership law.

We are a partnership formed in the Republic of the Marshall Islands, which does not have a well-developed body of case law or bankruptcy law and, as a result, unitholders have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States. As

39


 

such, in the case of a bankruptcy of the Partnership, there may be a delay of bankruptcy proceedings and the ability of unitholders and creditors to receive recovery after a bankruptcy proceeding. Our partnership affairs are governed by our partnership agreement and by the Marshall Islands Act. The provisions of the Marshall Islands Act resemble provisions of the limited partnership laws of a number of states in the United States, most notably Delaware. The Marshall Islands Act also provides that it is to be applied and construed to make it uniform with the Delaware Revised Uniform Partnership Act and, so long as it does not conflict with the Marshall Islands Act or decisions of the Marshall Islands courts, interpreted according to the non-statutory law (or case law) of the State of Delaware. There have been, however, few, if any, court cases in the Marshall Islands interpreting the Marshall Islands Act, in contrast to Delaware, which has a well-developed body of case law interpreting its limited partnership statute. Accordingly, we cannot predict whether Marshall Islands courts would reach the same conclusions as the courts in Delaware. For example, the rights of our unitholders and the fiduciary responsibilities of our general partner under Marshall Islands law are not as clearly established as under judicial precedent in existence in Delaware. As a result, unitholders may have more difficulty in protecting their interests in the face of actions by our general partner and its officers and directors than would unitholders of a similarly organized limited partnership in the United States.

Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

We are organized under the laws of the Marshall Islands, and substantially all of our assets are located outside of the United States. In addition, our general partner is a Marshall Islands limited liability company, our directors and officers generally are or will be non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Marshall Islands and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or the assets of our general partner or our directors or officers.

Our partnership agreement designates the Court of Chancery of the State of Delaware as the sole and exclusive forum, unless otherwise provided for by Marshall Islands law, for certain litigation that may be initiated by our unitholders, which could limit our unitholders’ ability to obtain a favorable judicial forum for disputes with our general partner.

Our partnership agreement provides that, unless otherwise provided for by Marshall Islands law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any claims that:

 

 

arise out of or relate in any way to the partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of the partnership agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us);

 

 

are brought in a derivative manner on our behalf;

 

 

assert a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our general partner, or owed by our general partner, to us or the limited partners;

 

 

assert a claim arising pursuant to any provision of the Marshall Islands Act; or

 

 

assert a claim governed by the internal affairs doctrine regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. Any person or entity otherwise acquiring any interest in our common units shall be deemed to have notice of and to have consented to the provisions described above. This forum selection provision may limit our unitholders’ ability to obtain a judicial forum that they find favorable for disputes with us or our directors, officers or other employees or unitholders.

40


 

Tax Risks

In addition to the following risk factors, you should read “Item 10. Additional Information—E. Tax Considerations” for a more complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our common units.

We may be subject to taxes, which may reduce our cash available for distribution to you.

We and our subsidiaries may be subject to tax in the jurisdictions in which we are organized or operate, reducing the amount of cash available for distribution. In computing our tax obligation in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. We cannot assure you that upon review of these positions the applicable authorities will agree with our positions. A successful challenge by a tax authority could result in additional tax imposed on us or our subsidiaries, further reducing the cash available for distribution. In addition, changes in our operations or ownership could result in additional tax being imposed on us or our subsidiaries in jurisdictions in which operations are conducted. See “Item 4. Information on the Partnership—B. Business Overview—Taxation of the Partnership”.

U.S. tax authorities could treat us as a “passive foreign investment company” under certain circumstances, which would have adverse U.S. federal income tax consequences to U.S. unitholders.

A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company”, or “PFIC”, for U.S. federal income tax purposes if at least 75.0% of its gross income for any tax year consists of “passive income” or at least 50.0% of the average value of its assets produce, or are held for the production of, “passive income”. For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income”. U.S. unitholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests in the PFIC.

Based on our current and projected method of operation, and an opinion of our U.S. counsel, Cravath, Swaine & Moore LLP, we believe that we will not be a PFIC for our current tax year, and we expect that we will not be treated as a PFIC for any future tax year. We have received an opinion of our U.S. counsel in support of this position that concludes that the income our subsidiaries earn from certain of our present time-chartering activities should not constitute passive income for purposes of determining whether we are a PFIC. In addition, we have represented to our U.S. counsel that we expect that more than 25.0% of our gross income for our current tax year and each future year will arise from such time-chartering activities or other income our U.S. counsel has opined does not constitute passive income, and more than 50.0% of the average value of our assets for each such year will be held for the production of such nonpassive income. Assuming the composition of our income and assets is consistent with these expectations, and assuming the accuracy of other representations we have made to our U.S. counsel for purposes of their opinion, our U.S. counsel is of the opinion that we should not be a PFIC for our current tax year or any future year. This opinion is based and its accuracy is conditioned on representations, valuations and projections provided by us regarding our assets, income and charters to our U.S. counsel. While we believe these representations, valuations and projections to be accurate, the shipping market is volatile and no assurance can be given that they will continue to be accurate at any time in the future.

Moreover, there are legal uncertainties involved in determining whether the income derived from time-chartering activities constitutes rental income or income derived from the performance of services. In Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), the United States Court of

41


 

Appeals for the Fifth Circuit, or the “Fifth Circuit”, held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a provision of the Code relating to foreign sales corporations. In that case, the Fifth Circuit did not address the definition of passive income or the PFIC rules; however, the reasoning of the case could have implications as to how the income from a time charter would be classified under such rules. If the reasoning of this case were extended to the PFIC context, the gross income we derive or are deemed to derive from our time-chartering activities may be treated as rental income, and we would likely be treated as a PFIC. In published guidance, the Internal Revenue Service, or “IRS”, stated that it disagreed with the holding in Tidewater, and specified that time charters similar to those at issue in the case should be treated as service contracts. We have not sought, and we do not expect to seek, an IRS ruling on the treatment of income generated from our time-chartering activities, and the opinion of our counsel is not binding on the IRS or any court. As a result, the IRS or a court could disagree with our position. No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any tax year, we cannot assure you that the nature of our operations will not change in the future, or that we will not be a PFIC in the future. If the IRS were to find that we are or have been a PFIC for any tax year (and regardless of whether we remain a PFIC for any subsequent tax year), our U.S. unitholders would face adverse U.S. federal income tax consequences. See “Item 10. Additional Information—E. Tax Considerations—Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders—PFIC Status and Significant Tax Consequences” for a more detailed discussion of the U.S. federal income tax consequences to U.S. unitholders if we are treated as a PFIC.

We may have to pay tax on U.S.-source income, which will reduce our cash flow.

Under the Code, the U.S. source gross transportation income of a ship-owning or chartering corporation, such as ourselves, is subject to a 4% U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under a tax treaty or Section 883 of the Code and the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.

We do not expect to qualify for the exemption from U.S. federal income tax under Section 883 during the 2016 tax year, unless our general partner exercises the “GasLog option” described below. Even if we do not qualify, we do not currently expect any resulting U.S. federal income tax liability to be material or materially reduce the earnings available for distribution to our unitholders. For 2015, the accrued U.S. source gross transportation tax was $0.01 million. For a more detailed discussion, see the section entitled “Item 4. Information on the Partnership—B. Business Overview—Taxation of the Partnership—United States”.

You may be subject to income tax in one or more non-U.S. jurisdictions as a result of owning our common units if, under the laws of any such jurisdiction, we are considered to be carrying on business there. Such laws may require you to file a tax return with, and pay taxes to, those jurisdictions.

We intend to conduct our affairs and cause each of our subsidiaries to operate its business in a manner that minimizes income taxes imposed upon us and our subsidiaries. Furthermore, we intend to conduct our affairs and cause each of our subsidiaries to operate its business in a manner that minimizes the risk that unitholders may be treated as having a permanent establishment or tax presence in a jurisdiction where we or our subsidiaries conduct activities simply by virtue of their ownership of our common units. However, because we are organized as a partnership, there is a risk in some jurisdictions that our activities or the activities of our subsidiaries may rise to the level of a tax presence that is attributed to our unitholders for tax purposes. If you are attributed such a tax presence in a jurisdiction, you may be required to file a tax return with, and to pay tax in, that jurisdiction based on your allocable share of our income. In addition, we may be required to obtain information from you in the event a tax authority requires such information to submit a tax return.

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We may be required to reduce distributions to you on account of any tax withholding obligations imposed upon us by that jurisdiction in respect of such allocation to you. The United States may not allow a tax credit for any foreign income taxes that you directly or indirectly incur by virtue of an investment in us.

ITEM 4. INFORMATION ON THE PARTNERSHIP

A. History and Development of the Partnership

GasLog Partners was formed on January 23, 2014 as a Marshall Islands limited partnership. GasLog Partners and its subsidiaries are primarily engaged in the ownership, operation and acquisition of LNG carriers engaged in LNG transportation under long-term charters, which we define as charters of five full years or more. The Partnership conducts its operations through its vessel-owning subsidiaries and as of February 11, 2016, we have a fleet of eight LNG carriers, including three vessels with modern tri-fuel diesel electric (“TFDE”) propulsion technology and five modern Steam vessels.

On May 12, 2014, we completed our IPO and our common units began trading on the NYSE on May 7, 2014 under the ticker symbol “GLOP”. A portion of the proceeds of our IPO was paid as partial consideration for GasLog’s contribution to us of the interests in its subsidiaries which owned the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney. On September 29, 2014, we completed a follow-on public equity offering, the proceeds of which were used to partly fund our acquisition of GasLog’s subsidiaries that owned the Methane Rita Andrea and the Methane Jane Elizabeth. On June 26, 2015, we completed a follow-on public equity offering, the proceeds of which were used to partially finance the acquisition of GasLog’s subsidiaries that owned the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally. The acquisition closed on July 1, 2015.

We maintain our principal executive offices at Gildo Pastor Center, 7 Rue du Gabian, MC 98000, Monaco. Our telephone number at that address is +377 97 97 51 15.

B. Business Overview

Overview

We are a growth-oriented limited partnership focused on owning, operating and acquiring LNG carriers engaged in LNG transportation under long-term charters, which we define as charters of five full years or more. Our fleet of eight LNG carriers, which have fixed charter terms expiring between 2018 and 2020 that can be extended at the charterers’ option, were contributed to us by, or acquired by us from, GasLog, which controls us through its ownership of our general partner.

Our fleet consists of eight LNG carriers, including three vessels with modern TFDE propulsion technology and five modern Steam vessels that operate under long-term charters with MSL. We also have options and other rights under which we may acquire additional LNG carriers from GasLog, as described below. We believe that such options and rights provide us with significant built-in growth opportunities. We may also acquire vessels from shipyards or other owners in the future.

We operate our vessels under long-term charters with fixed-fee contracts that generate predictable cash flows. We intend to grow our fleet through further acquisitions of LNG carriers from GasLog and third parties. However, we cannot assure you that we will make any particular acquisition or that as a consequence we will successfully grow our per unit distributions. Among other things, our ability to acquire additional LNG carriers will be dependent upon our ability to raise additional equity and debt financing. For further discussion of the risks that we face, please read “Item 3. Key Information—D. Risk Factors”.

GasLog is, we believe, a leading independent international owner, operator and manager of LNG carriers and provides support to international energy companies as part of their LNG logistics chain. GasLog was founded by its chairman, Peter G. Livanos, whose family’s shipping activities commenced more than 100 years ago. On April 4, 2012, GasLog completed its initial public offering, and its common shares began trading on the NYSE on March 30, 2012, under the ticker symbol

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“GLOG”. At the time of its initial public offering, GasLog’s owned fleet consisted of ten LNG carriers, including eight newbuildings on order. Since its initial public offering, GasLog has increased by approximately 107% the total carrying capacity of vessels in its fleet, which includes vessels on the water and newbuildings on order. As of February 11, 2016, GasLog had a wholly owned 19 ship fleet, including 11 ships on the water and eight LNG carriers on order from Samsung and Hyundai, as well as a 32.9% ownership in the Partnership. See “—Our Fleet”.

Our Fleet

Owned Fleet

The following table presents information about our fleet as of February 11, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

LNG Carrier

 

Year
Built

 

Cargo
Capacity
(cbm)

 

Charterer(1)

 

Propulsion

 

Charter
Expiration

 

Optional
Period

GasLog Shanghai

 

2013

 

 

 

155,000

 

 

 

 

BG Group

   

TFDE

 

May 2018

 

 

 

2021-2026(2)

 

GasLog Santiago

 

2013

 

 

 

155,000

 

 

 

 

BG Group

   

TFDE

 

July 2018

 

 

 

2021-2026(2)

 

GasLog Sydney

 

2013

 

 

 

155,000

 

 

 

 

BG Group

   

TFDE

 

September 2018(5)

 

 

 

2021-2026(2)

 

Methane Rita Andrea

 

2006

 

 

 

145,000

 

 

 

 

BG Group

   

Steam

 

April 2020

 

 

 

2023-2025(3)

 

Methane Jane Elizabeth

 

2006

 

 

 

145,000

 

 

 

 

BG Group

   

Steam

 

October 2019

 

 

 

2022-2024(3)

 

Methane Alison Victoria

 

2007

 

 

 

145,000

 

 

 

 

BG Group

   

Steam

 

December 2019

 

 

 

2022-2024(4)

 

Methane Shirley Elisabeth

 

2007

 

 

 

145,000

 

 

 

 

BG Group

   

Steam

 

June 2020

 

 

 

2023-2025(4)

 

Methane Heather Sally

 

2007

 

 

 

145,000

 

 

 

 

BG Group

   

Steam

 

December 2020

 

 

 

2023-2025(4)

 

 

 

(1)

 

Vessels are chartered to MSL.

 

(2)

 

The charters may be extended for up to two extension periods of three or four years at the charterer’s option, and each charter requires that the charterer provide us with 90 days’ notice before the charter expiration of its exercise of any extension option. The period shown reflects the expiration of the minimum optional period and the maximum optional period.

 

(3)

 

Charterer may extend either or both of these charters for one extension period of three or five years, and each charter requires that the charterer provide us with advance notice of its exercise of any extension option. The period shown reflects the expiration of the minimum optional period and the maximum optional period.

 

(4)

 

Charterer may extend the term of two of the related charters for one extension period of three or five years, and each charter requires that the charterer provide us with advance notice of its exercise of any extension option. The period shown reflects the expiration of the minimum optional period and the maximum optional period.

 

(5)

 

Pursuant to the agreement signed with MSL on April 21, 2015, with respect to the GasLog Sydney, whose charter was shortened by 8 months under such agreement, if MSL does not exercise the charter extension options for the GasLog Sydney, and GasLog Partners does not enter into a third-party charter for the GasLog Sydney, GasLog and GasLog Partners intend to enter into a bareboat or time charter arrangement that is designed to guarantee the total cash distribution from the vessel for any period of charter shortening.

The key characteristics of our current fleet include the following:

 

 

each ship is sized at between approximately 145,000 cbm and 155,000 cbm capacity, which places our ships in the medium-size class of LNG carriers; we believe this size range maximizes their operational flexibility, as these ships are compatible with most existing LNG terminals around the world, and minimizes excess LNG boil-off;

 

 

our ships are of the same specifications (in groups of three, two and three ships);

 

 

each ship is double-hulled, which is standard in the LNG industry;

 

 

each ship has a membrane containment system incorporating current industry construction standards, including guidelines and recommendations from Gaztransport and Technigaz (the designer of the membrane system) as well as updated standards from our classification society;

 

 

each of our ships is modern steam powered or has TFDE propulsion technology;

 

 

Bermuda is the flag state of each ship;

 

 

each of our ships has received an ENVIRO+ notation from our classification society, which denotes compliance with its published guidelines concerning the most stringent criteria for

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environmental protection related to design characteristics, management and support systems, sea discharges and air emissions; and

 

 

our fleet has an average age of 6.7 years, making it one of the youngest in the industry, compared to a current average age of 11.2 years for the global LNG carrier fleet including LNG carriers of all sizes as of December 31, 2015.

Additional Vessels

Existing Vessel Interests Purchase Options

We currently have the option to purchase the following nine LNG carriers from GasLog within 36 months after each such vessel’s acceptance by its charterer—or, in the case of the GasLog Seattle and the Methane Lydon Volney, which GasLog acquired from BG Group during the second quarter of 2014, 36 months after the closing of the IPO, which occurred on May 12, 2014, or, in the case of the Methane Becki Anne and the Methane Julia Louise, 36 months after the completion of their acquisition by GasLog, which occurred on March 31, 2015, in each case at fair market value as determined pursuant to the omnibus agreement.

See “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions—Omnibus Agreement—Noncompetition” for additional information on the LNG carrier purchase options.

 

 

 

 

 

 

 

 

 

 

 

LNG Carrier

 

Year
Built
(1)

 

Cargo
Capacity
(cbm)

 

Charterer(2)

 

Propulsion

 

Charter
Expiration
(3)

GasLog Seattle

 

2013

 

 

 

155,000

   

Shell

 

TFDE

 

December 2020

Solaris

 

2014

 

 

 

155,000

   

Shell

 

TFDE

 

June 2021

Hull No. 2072

 

Q1 2016

 

 

 

174,000

   

BG Group

 

TFDE

 

2026

Hull No. 2073

 

Q2 2016

 

 

 

174,000

   

BG Group

 

TFDE

 

2026

Hull No. 2102

 

Q3 2016

 

 

 

174,000

   

BG Group

 

TFDE

 

2023

Hull No. 2103

 

Q4 2016

 

 

 

174,000

   

BG Group

 

TFDE

 

2023

Methane Lydon Volney

 

2006

 

 

 

145,000

   

BG Group

 

Steam

 

October 2020

Methane Becki Anne

 

2010

 

 

 

170,000

   

BG Group

 

TFDE

 

March 2024

Methane Julia Louise

 

2010

 

 

 

170,000

   

BG Group

 

TFDE

 

March 2026

 

 

(1)

 

For newbuildings, expected delivery quarters are presented.

 

(2)

 

Vessels are chartered to MSL, or a subsidiary of Shell, as applicable.

 

(3)

 

Indicates the expiration of the initial fixed term.

Five-Year Vessel Restricted Business Opportunities

GasLog has agreed, and has caused its controlled affiliates (other than us, our general partner and our subsidiaries) to agree, not to acquire, own, operate or charter any LNG carrier with a cargo capacity greater than 75,000 cbm engaged in oceangoing LNG transportation under a charter for five full years or more. We refer to these vessels, together with any related charters, as “Five-Year Vessels”. In the event that GasLog acquires, operates or puts under charter a Five-Year Vessel, then GasLog will be required, within 30 calendar days after the consummation of the acquisition or the commencement of the operations or charter, to notify us and offer us the opportunity to purchase such Five-Year Vessel at fair market value. The three newbuildings listed below which are expected to be chartered under the agreement signed with a subsidiary of BG Group on April 21, 2015, will each qualify as a Five Year Vessel upon commencement of its charter, and GasLog will be required to offer to us an opportunity to purchase each vessel at fair market value within 30 days of the commencement of its charter. Generally, we must exercise this right of first offer within 30 days following the notice from GasLog that the vessel has been acquired or has become a Five Year Vessel.

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LNG Carrier

 

Year
Built
(1)

 

Cargo
Capacity
(cbm)

 

Charterer(2)

 

Propulsion(3)

 

Estimated
Charter
Expiration
(4)

Hull No. 2130

 

 

 

Q1 2018

 

 

 

 

174,000

   

BG Group

 

LP-2S

 

2027

Hull No. 2800

 

 

 

Q1 2018

 

 

 

 

174,000

   

BG Group

 

LP-2S

 

2028

Hull No. 2131

 

 

 

Q1 2019

 

 

 

 

174,000

   

BG Group

 

LP-2S

 

2029

 

 

(1)

 

Expected delivery quarters are presented.

 

(2)

 

Vessels are chartered to MSL.

 

(3)

 

References to “LP-2S” refer to low pressure dual-fuel two-stroke engine propulsion.

 

(4)

 

Charter expiration to be determined based upon actual date of delivery.

Rights of First Offer

In addition, under the omnibus agreement, we will have a right of first offer with regard to any proposed sale, transfer or other disposition of any LNG carriers with cargo capacities greater than 75,000 cbm engaged in oceangoing LNG transportation under a charter of five full years or more that GasLog owns, as discussed elsewhere in this annual report.

Vessel Acquisition Considerations

We are not obligated to purchase any of the vessels from GasLog described in the previous sections and, accordingly, we may not complete the purchase of any such vessels. Furthermore, our ability to purchase any additional vessels, including under the omnibus agreement from GasLog, is dependent on our ability to obtain financing to fund all or a portion of the acquisition costs of these vessels. As of February 11, 2016, we have not secured any financing for the acquisition of additional vessels. Our ability to acquire additional vessels from GasLog is also subject to obtaining any applicable consents of governmental authorities and other non-affiliated third parties, including the relevant lenders and charterers. Under the omnibus agreement, GasLog will be obligated to use reasonable efforts to obtain any such consents. We cannot assure you that in any particular case the necessary consent will be obtained. See “Item 3. Key Information—D. Risk Factors—Risks Inherent in Our Business” for a discussion of the risks we face in acquiring vessels. See also “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions—Omnibus Agreement”.

Customers

One customer, MSL, accounted for all of our total revenues for the year ended December 31, 2015. If we exercise our option to purchase the GasLog Seattle and the Solaris from GasLog, our customers would also include a subsidiary of Shell.

Ship Time Charters

We provide the services of our ships under time charters. A time charter is a contract for the use of the ship for a specified term at a daily hire rate. Under a time charter, the ship owner provides crewing and other services related to the ship’s operation, the cost of which is covered by the hire rate, and the customer is responsible for substantially all of the ship voyage costs (including bunker fuel, port charges and canal fees and LNG boil-off). If we exercise our option to purchase any of the Methane Lydon Volney, the Methane Becki Anne, the Methane Julia Louise, Hull Nos. 2072, 2073, 2102 or 2103, or, once offered by GasLog Hull Nos. 2130, 2800 or 2131 such LNG carriers will be chartered to MSL. If we exercise our option to purchase the GasLog Seattle or the Solaris, such LNG carriers will be chartered to a subsidiary of Shell.

Our subsidiaries that own the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney have entered into a master time charter with MSL that establishes the general terms under which the three vessels are chartered. Such subsidiaries have also entered into a separate confirmation memorandum for each ship in order to supplement the master time charter and specify the charter term, extension options (if any), hire rate and other provisions applicable to each ship’s charter. Our

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subsidiaries that own the Methane Rita Andrea, the Methane Jane Elizabeth, the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally have entered into separate time charters for each vessel with MSL.

The following discussion describes the material terms of the time charters for our fleet.

Initial Term, Extensions and Redelivery

The initial terms of the time charters for the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney began upon delivery of the ships in January 2013, March 2013 and May 2013, respectively, and were due to terminate in 2018 and 2019, as applicable with MSL having options to extend the terms of each of the charters for up to eight years at specified hire rates. However, the charter expirations were amended based on an agreement signed with MSL on April 21, 2015. The initial terms of the time charters for the GasLog Shanghai and the GasLog Santiago were each extended by four months. With respect to the GasLog Sydney, whose charter was shortened by 8 months under such agreement, if MSL does not exercise the charter extension options for the GasLog Sydney, and GasLog Partners does not enter into a third-party charter for the GasLog Sydney, GasLog and GasLog Partners intend to enter into a bareboat or time charter arrangement that is designed to guarantee the total cash distribution from the vessel for any period of charter shortening.

The initial terms of the time charters for the Methane Rita Andrea and the Methane Jane Elizabeth began upon delivery of the ships in April 2014 and will terminate in 2020 and 2019, respectively. MSL has options to extend the terms of each or both of the charters for three or five years at specified hire rates, and each charter requires that the charterer provide the owner with advance notice of its exercise of any extension option.

The initial terms of the time charters for the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally began upon their acquisition by GasLog on June 4, 2014, June 11, 2014 and June 25, 2014, respectively, and will terminate in 2019, 2020 and 2020, respectively. MSL has options to extend the terms of two of the time charters for a period of either three or five years beyond the initial charter expiration date.

Our time charters provide for redelivery of the ship to us at the expiration of the term, as such term may be extended upon the charterer’s exercise of its extension options, or upon earlier termination of the charter (as described below), plus or minus 30 days. Under all of our charters, the charterer has the right to extend the term for most periods in which the ship is off-hire, as described below. Our charter contracts do not provide the charterers with options to purchase our ships during or upon expiration of the charter term.

Hire Rate Provisions

“Hire rate” refers to the basic payment from the customer for use of the ship. Under all of our time charters, the hire rate is payable to us monthly in advance in U.S. dollars.

Under the time charters for the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney, the hire rate includes two components—a capital cost component and an operating cost component. The capital cost component relates to the cost of the ship’s purchase and is a fixed daily amount that is structured to provide a return on our invested capital. The charters provide for the capital cost component to increase by a specified amount during any option period. The operating cost component is a fixed daily amount that increases at periodic intervals at a fixed percentage or is calculated based on a periodic budget agreed upon by the parties. Although the daily amount of the operating cost component is fixed (subject to a specified periodic increase or adjustment if a given charter contains such provision), it is intended to correspond to the costs of operating the ship and related expenses. In such charters, in the event of a material increase in the actual costs we incur in operating the ship, a clause in the charter provides us the right in certain circumstances to seek a review and potential adjustment of the operating cost component. The hire rates provided for under the time charters for the Methane Rita Andrea, the Methane Jane Elizabeth, the Methane

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Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally include only one component that is a fixed daily amount that decreases during any option period.

The hire rates for each of our ships may be reduced if the ship does not perform to certain of its specifications or if we breach our obligations under the charter.

Off-Hire

When a ship is “off-hire”—or not available for service—a time charterer generally is not required to pay the hire rate, and we remain responsible for all costs, including the cost of any LNG cargo lost as boil-off during such off-hire periods. Our time charters provide an annual allowance period for us to schedule preventative maintenance work on the ship. A ship generally will be deemed off-hire under our time charters if there is a specified time outside of the annual allowance period when the ship is not available for the charterer’s use due to, among other things, operational deficiencies (including the failure to maintain a certain guaranteed speed), drydocking for repairs, maintenance or inspection, equipment breakdowns, deficiency of personnel or neglect of duty by the ship’s officers or crew, deviation from course, or delays due to accidents, quarantines, ship detentions or similar problems.

All ships are drydocked at least once every five years as required by the ship’s classification society for a special survey. Ships are considered to be off-hire under our time charters during such periods.

Ship Management and Maintenance

Under our time charters, we are responsible for the technical management of our ships, including engagement and provision of qualified crews, employment of armed guards for transport in certain high-risk areas, maintaining the ship, arranging supply of stores and equipment, cleaning and painting and ensuring compliance with applicable regulations, including licensing and certification requirements, as well as for drydocking expenses. We provide these management services through technical management agreements with GasLog LNG Services, a wholly owned subsidiary of GasLog. See “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions—Ship Management Agreements”.

Termination and Cancellation

Under our existing time charters, each party has certain termination rights which include, among other things, the automatic termination of a charter upon loss of the relevant ship. Either party may elect to terminate a charter upon the occurrence of specified defaults or upon the outbreak of war or hostilities involving two or more major nations, such as the United States or the People’s Republic of China, if such war or hostilities materially and adversely affect the trading of the ship for a period of at least 30 days. In addition, charterers have the option to terminate a charter if the relevant ship is off-hire for any reason other than scheduled drydocking for a period exceeding 90 consecutive days, or for more than 90 days, in any one-year period.

Competition

We operate in markets that are highly competitive and based primarily on supply and demand. Generally, competition for LNG time charters is based primarily on price, ship availability, size, age, technical specifications and condition, LNG shipping experience, quality and efficiency of ship operations, shipping industry relationships and reputation for customer service, and technical ability and reputation for operation of highly specialized ships. In addition, in the future our ships may operate in the more volatile emerging spot market that covers short-term charters of one year or less.

Although we believe that we are one of the few independent owners that focus primarily on newly-built, technically advanced LNG carriers, other independent shipping companies also own and operate, and in some cases manage, LNG carriers and have new ships under construction. There are

48


 

other ship owners and managers who may also attempt to participate in the LNG market in the future.

In addition to independent owners, some of the major oil and gas producers own LNG carriers, and in the recent past they have contracted for the construction of new LNG carriers. National gas and shipping companies also have large fleets of LNG carriers that have expanded and may continue to expand. Some of these companies may compete with independent owners by using their fleets to carry LNG for third parties.

Seagoing and Shore-Based Employees

We do not directly employ any on-shore employees, other than our Executive Chairman, or any seagoing employees. The services of our executive officers and other employees are provided pursuant to the administrative services agreement, under which we pay an annual fee. As of December 31, 2015, GasLog employed (directly and through ship managers) approximately 1,214 seafaring staff who serve on GasLog’s owned and managed vessels (including our fleet) as well as 162 shore-based staff. GasLog and its affiliates may employ additional staff to assist us as we grow. GasLog, through certain of its subsidiaries, provides onshore advisory, commercial, technical and operational support to our operating subsidiaries pursuant to the amended ship management agreements, subject to any alternative arrangements made with the applicable charterer. See “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions—Ship Management Agreements”.

LNG marine transportation is a specialized area requiring technically skilled officers and personnel with specialized training. We and GasLog regard attracting and retaining motivated, well-qualified seagoing and shore-based personnel as a top priority, and GasLog offers its people competitive compensation packages. As a result, GasLog has historically enjoyed high retention rates. In 2015, GasLog’s retention rate was 96% for senior seagoing officers, 98% for other seagoing officers and 96% for shore staff.

Although GasLog has historically experienced high employee retention rates, the demand for technically skilled officers and crews to serve on LNG carriers has been increasing as the global fleet of LNG carriers continues to grow. This increased demand has and may continue to put inflationary cost pressure on ensuring qualified and well trained crew are available to GasLog. However, we and GasLog expect that the impact of cost increases would be mitigated to some extent by certain provisions in our time charters, including automatic periodic adjustment provisions and cost review provisions.

Classification, Inspection and Maintenance

Every large, commercial seagoing ship must be “classed” by a classification society. The classification society certifies that the ship is “in class”, signifying that the ship has been built and subsequently maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the ship’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned. The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.

To ensure each ship is maintained in accordance with classification society standards and for maintenance of the class certificate, regular and extraordinary surveys of hull and machinery, including the electrical plant, and any special equipment classed are required to be performed periodically. Surveys are based on a five-year cycle that consists of annual surveys, intermediate surveys that are typically completed between the second and third years of every five-year cycle, and comprehensive special surveys (also known as class renewal surveys) that are completed at each fifth anniversary of the ship’s delivery.

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All areas subject to surveys as defined by the classification society are required to be surveyed at least once per five-year class cycle, unless shorter intervals between surveys are otherwise prescribed. All ships are also required to be drydocked at least once during every five-year class cycle for inspection of their underwater parts and for repairs related to inspections. If any defects are found, the classification surveyor will issue a “recommendation” which must be rectified by the ship owner within prescribed time limits. We intend to drydock our ships at five-year intervals that coincide with the completion of the ship’s special surveys. We expect that the drydocking schedule for the vessels for which we have options to acquire under the omnibus agreement will, for the foreseeable future, be the same as the schedule for our fleet.

Most insurance underwriters make it a condition for insurance coverage that a ship be certified as “in class” by a classification society that is a member of the International Association of Classification Societies. The vessels in our fleet are each certified by the American Bureau of Shipping, or “ABS”. Each ship has been awarded International Safety Management (“ISM”) certification and is currently “in class”.

The following table lists the years in which we expect to carry out the next or initial drydockings and special surveys for our fleet:

 

 

 

Ship Name

 

Drydocking and
Special Survey

Methane Rita Andrea

 

2016

Methane Jane Elizabeth

 

2016

GasLog Shanghai

 

2018

GasLog Santiago

 

2018

GasLog Sydney

 

2018

Methane Alison Victoria

 

2020

Methane Shirley Elisabeth

 

2020

Methane Heather Sally

 

2020

Risk of Loss, Insurance and Risk Management

The operation of any ship has inherent risks. These risks include mechanical failure, personal injury, collision, property loss or damage, ship or cargo loss or damage and business interruption due to a number of reasons, including mechanical failure, political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including explosion, spills and other environmental mishaps, and the liabilities arising from owning and operating ships in international trade.

We maintain hull and machinery insurance on all our ships against marine and war risks in amounts that we believe to be prudent to cover such risks. In addition, we maintain protection and indemnity insurance on all our ships up to the maximum insurable limit available at any given time. The insurance coverage is described in more detail below. While we believe that our insurance coverage will be adequate, not all risks can be insured, and there can be no guarantee that we will always be able to obtain adequate insurance coverage at reasonable rates or at all, or that any specific claim we may make under our insurance coverage will be paid.

Hull & Machinery Marine Risks Insurance and Hull & Machinery War Risks Insurance

We maintain hull and machinery marine risks insurance and hull and machinery war risks insurance on our ships, which cover loss of or damage to a ship due to marine perils such as collisions, fire or lightning, and the loss of or damage to a ship due to war perils such as acts of war, terrorism or piracy. Each of our ships is insured under these policies for a total amount that exceeds what we believe to be its fair market value. We also maintain hull disbursements and increased value insurance policies covering each of our ships, which provide additional coverage in the event of the total or constructive loss of a ship. Our marine risks insurance policies contain deductible amounts for which we will be responsible, but there are no deductible amounts under our war risks policies or our total loss policies.

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Loss of Hire Insurance

We have obtained loss of hire insurance to protect us against loss of income as a result of the ship being off-hire or otherwise suffering a loss of operational time for events falling under the terms of our hull and machinery/war insurance. Under our loss of hire policy, our insurer will pay us the hire rate agreed in respect of each ship for each day, in excess of a certain number of deductible days, for the time that the ship is out of service as a result of damage, for a maximum of 180 days. The number of deductible days for the ships in our fleet is 14 days per ship.

Additionally, we buy piracy loss of hire and kidnap and ransom insurance when our ships are ordered to sail through the Indian Ocean to insure against potential losses relating to the hijacking of a ship and its crew by pirates.

Protection and Indemnity Insurance

Protection and indemnity insurance is typically provided by a protection and indemnity association, or “P&I association”, and covers third-party liability, crew liability and other related expenses resulting from injury to or death of crew, passengers and other third parties, loss of or damage to cargo, third-party claims arising from collisions with other ships (to the extent not recovered by the hull and machinery policies), damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal.

Our protection and indemnity insurance covering our ships is provided by a P&I association that is a member of the International Group of Protection and Indemnity Clubs, or “International Group”. The thirteen P&I associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. Insurance provided by a P&I association is a form of mutual indemnity insurance.

Our protection and indemnity insurance is currently subject to limits of $3 billion per ship per event in respect of liability to passengers and seamen, $2 billion per ship per event in respect of liability to passengers, and $1 billion per ship per event in respect of liability for oil pollution.

As a member of a P&I association, we will be subject to calls payable to the P&I association based on the International Group’s claim records as well as the claim records of all other members of the P&I association of which we are a member.

Safety Performance

GasLog provides intensive onboard training for its officers and crews to instill a culture of the highest operational and safety standards. During 2015, GasLog’s fleet experienced three lost time injuries and three first aid cases.

Permits and Authorizations

We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, financial assurances and certificates with respect to our ships. The kinds of permits, licenses, financial assurances and certificates required will depend upon several factors, including the waters in which the ship operates, the nationality of the ship’s crew and the age of the ship. We have obtained all permits, licenses, financial assurances and certificates currently required to operate our ships. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of our doing business.

Environmental and Other Regulation

The carriage, handling, storage and regasification of LNG are subject to extensive laws and regulations relating to the protection of the environment, health and safety and other matters. These laws and regulations include international conventions and national, state and local laws and regulations in the countries where our ships now or in the future will operate, or where our ships

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are registered. Compliance with these laws and regulations may entail significant expenses and may impact the resale value or useful lives of our ships. Our ships may be subject to both scheduled and unscheduled inspections by a variety of governmental, quasi-governmental and private organizations, including the local port authorities, national authorities, harbor masters or equivalent, classification societies, flag state administrations (countries of registry) and charterers. Our failure to maintain permits, licenses, certificates or other authorizations required by some of these entities could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our ships or lead to the invalidation or our insurance coverage reduction.

We believe that our ships are operated in material compliance with applicable environmental laws and regulations and that our ships in operation have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. In fact, each of our ships have received an ENVIRO, an ENVIRO+ or a CLEAN notation from our classification societies, which denote compliance with their published guidelines concerning stringent criteria for environmental protection related to design characteristics, management and support systems, sea discharges and air emissions. Because environmental laws and regulations are frequently changed and may impose increasingly stricter requirements, however, it is difficult to accurately predict the ultimate cost of complying with these requirements or the impact of these requirements on the resale value or useful lives of our ships. Moreover, additional legislation or regulation applicable to the operation of our ships that may be implemented in the future, such as in response to a serious marine incident like the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, could negatively affect our profitability.

International Maritime Regulations

The IMO, the United Nations agency for maritime safety and the prevention of pollution by ships, has adopted several international conventions that regulate the international shipping industry, including the SOLAS Convention, the International Convention on Civil Liability for Oil Pollution Damage, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the MARPOL Convention. Ships that transport gas, including LNG carriers, are also subject to regulations under amendments to SOLAS implementing the International Code for Construction and Equipment of Ships Carrying Liquefied Gases in Bulk, or the “IGC Code”, and the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or the “ISM Code”. The ISM code requires, among other things, that the party with operational control of a ship develop an extensive safety management system, including the adoption of a policy for safety and environmental protection setting forth instructions and procedures for operating its ships safely and also describing procedures for responding to emergencies. We rely on GasLog LNG Services for developing a safety management system for our ships that meets these requirements. The IGC Code prescribes design and construction standards for ships involved in the transport of gas. Compliance with the IGC Code must be evidenced by a Certificate of Fitness for the Carriage of Liquefied Gases of Bulk. Each of our ships is in compliance with the IGC Code. Non-compliance with the IGC Code or other applicable IMO regulations may subject a ship owner or a bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected ships and may result in the denial of access to, or detention in, some ports.

The MARPOL Convention establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged form. In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships. Annex VI came into force on May 19, 2005. It sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. Annex VI has been ratified by many, but not all, IMO member states. In October 2008, the Marine Environment Protection Committee, or “MEPC”, of the IMO approved amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emissions standards. These amendments became effective in July 2010. These requirements establish a series of progressive standards to further limit the sulfur content in fuel oil, which are being phased in between 2012 and 2020, and by establishing new tiers of nitrogen oxide emission

52


 

standards for new marine diesel engines, depending on their date of installation. Additionally, more stringent emission standards could apply in coastal areas designated as Emission Control Areas, or “ECAs”. For example, “Tier III” emission standards apply in North American and U.S. Caribbean Sea ECAs to all marine diesel engines installed on a ship constructed after January 1, 2016. The European Union Directive 2005/EC/33, which became effective on January 1, 2010, parallels Annex VI and requires ships to use reduced sulfur content fuel for their main and auxiliary engines. Our fleet complies with the relevant legislation and has the relevant certificates, including certificates evidencing compliance with Annex VI of the MARPOL Convention.

Although the United States is not a party, many countries have ratified the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended, or the “CLC”. Under this convention, a ship’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject under certain circumstances to certain defenses and limitations. Ships carrying more than 2,000 gross tons of oil, and trading to states that are parties to this convention, must maintain evidence of insurance in an amount covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law impose liability either on the basis of fault or in a manner similar to the CLC. P&I Clubs in the International Group issue the required Bunker Convention (defined below) “Blue Cards” to provide evidence that there is in place insurance meeting the liability requirements. Where applicable, all of our vessels have received “Blue Cards” from their P&I Club and are in possession of a CLC State-issued certificate attesting that the required insurance coverage is in force.

The IMO also has adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the “Bunker Convention”, which imposes liability on ship owners for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel and requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime. We maintain insurance in respect of our ships that satisfies these requirements.

Non-compliance with the ISM Code or with other IMO regulations may subject a ship owner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected ships and may result in the denial of access to, or detention in, some ports, including United States and European Union ports.

United States

Oil Pollution Act and CERCLA

Because our ships could trade with the United States or its territories or possessions and/or operate in U.S. waters, our operations could be impacted by OPA, which establishes an extensive regulatory and liability regime for environmental protection and cleanup of oil spills, and the Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA”, which imposes liability on owners and operators of ships for cleanup and natural resource damage from the release of hazardous substances (other than oil). Under OPA, ship owners, operators and bareboat charterers are responsible parties who are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from oil spills from their ships. OPA currently limits the liability of responsible parties with respect to ships over 3,000 gross tons to the greater of $2,000 per gross ton or $17,088,000 per double hull ship and permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries. Some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for ships carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for any other ship.

These limits of liability do not apply under certain circumstances, however, such as where the incident is caused by violation of applicable U.S. federal safety, construction or operating

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regulations, or by the responsible party’s gross negligence or willful misconduct. In addition, a marine incident that results in significant damage to the environment, such as the Deepwater Horizon oil spill, could result in amendments to these limitations or other regulatory changes in the future. We maintain the maximum pollution liability coverage amount of $1 billion per incident for our ships. We also believe that we will be in substantial compliance with OPA, CERCLA and all applicable state regulations in the ports where our ships will call.

OPA also requires owners and operators of ships to establish and maintain with the National Pollution Fund Center of the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential strict liability under the act. Such financial responsibility can be demonstrated by providing a guarantee from an appropriate guarantor, who can release the required guarantee to the National Pollution Fund Center against payment of the requested premium. We have purchased such a guarantee in order to provide evidence of financial responsibility and have received the mandatory certificates of financial responsibility from the U.S. Coast Guard in respect of each of the vessels included in our fleet. We intend to obtain such certificates in the future for each of our vessels, if required to have them.

Clean Water Act

The U.S. Clean Water Act of 1972, or “CWA”, prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. Furthermore, most U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.

The United States Environmental Protection Agency, or “EPA”, has enacted rules requiring ballast water discharges and other discharges incidental to the normal operation of certain ships within United States waters to be authorized under the Ship General Permit for Discharges Incidental to the Normal Operation of Ships, or the “VGP”. To be covered by the VGP, owners of certain ships must submit a Notice of Intent, or “NOI”, at least 30 days before the ship operates in United States waters. Compliance with the VGP could require the installation of equipment on our ships to treat ballast water before it is discharged or the implementation of other disposal arrangements, and/or otherwise restrict our ships from entering United States waters. In March 2013, the EPA published a new VGP that includes numeric effluent limits for ballast water expressed as the maximum concentration of living organisms in ballast water. The VGP also imposes a variety of changes for non-ballast water discharges including more stringent Best Management Practices for discharges of oil-to-sea interfaces in an effort to reduce the toxicity of oil leaked into U.S. waters. We have submitted NOIs for our fleet and intend to submit NOIs for our ships in the future, where required, and do not believe that the costs associated with obtaining and complying with the VGP will have a material impact on our operations.

Clean Air Act

The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the “CAA”, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our ships may be subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas and emission standards for so-called “Category 3” marine diesel engines operating in U.S. waters. The marine diesel engine emission standards are currently limited to new engines beginning with the 2004 model year. On April 30, 2010, the EPA adopted final emission standards for Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL.

The CAA also requires states to adopt State Implementation Plans, or “SIPs”, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial

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areas. Several SIPs regulate emissions resulting from ship loading and unloading operations by requiring the installation of vapor control equipment. The MEPC has designated as an ECA the area extending 200 miles from the territorial sea baseline adjacent to the Atlantic/Gulf and Pacific coasts and the eight main Hawaiian Islands and the Baltic Sea, North Sea and Caribbean Sea, under the Annex VI amendments. Fuel used by vessels operating in the ECA cannot exceed 0.1% sulfur. As of January 1, 2016, NOx after-treatment requirements will also apply. Our vessels can store and burn low-sulfur fuel oil or alternatively burn natural gas which contains no sulfur. Additionally, burning natural gas will ensure compliance with IMO Tier III NOx emission limitations without the need for after-treatment. Charterers must supply compliant fuel for the vessels before ordering vessels to trade in areas where restrictions apply. As a result, we do not expect such restrictions to have a materially adverse impact on our operations or costs.

Other Environmental Initiatives

U.S. Coast Guard regulations adopted under the U.S. National Invasive Species Act, or “NISA”, impose mandatory ballast water management practices for all ships equipped with ballast water tanks entering U.S. waters, which could require the installation of equipment on our ships to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures, and/or otherwise restrict our ships from entering U.S. waters. In June 2012, the U.S. Coast Guard rule establishing standards for the allowable concentration of living organisms in ballast water discharged in U.S. waters and requiring the phase-in of Coast Guard approved ballast water management systems, or “BWMS”, became effective. The rule requires installation of Coast Guard approved BWMS by new vessels constructed on or after December 1, 2013 and existing vessels as of their first drydocking after January 1, 2016. Several states have adopted legislation and regulations relating to the permitting and management of ballast water discharges.

At the international level, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments in February 2004, or the “BWM Convention”. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will not enter into force until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping. As of December 21, 2015, the date of the most recent related IMO report, 47 countries had ratified the convention; however, the requirement for parties to hold at least 35% of the world’s shipping tonnage had yet to be confirmed. The IMO’s Marine Environment Protection Committee passed a resolution in March 2010 encouraging the ratification of the Convention and calling upon those countries that have already ratified to encourage the installation of ballast water management systems. While we believe that the vessels in our fleet comply with existing requirements, when these new ballast water treatment requirements are instituted, the cost of compliance could increase for ocean carriers. It is difficult to accurately predict the overall impact of such a requirement on our operations.

Our vessels may also become subject to the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 1996 as amended by the Protocol to the HNS Convention, adopted in April 2010, or “HNS Convention”, if it is entered into force. The HNS Convention creates a regime of liability and compensation for damage from hazardous and noxious substances, or “HNS”, including a two-tier system of compensation composed of compulsory insurance taken out by shipowners and an HNS Fund which comes into play when the insurance is insufficient to satisfy a claim or does not cover the incident. To date, the HNS Convention has not been ratified by a sufficient number of countries to enter into force.

Greenhouse Gas Regulations

The MEPC of IMO adopted two new sets of mandatory requirements to address greenhouse gas emissions from ships at its July 2011 meeting. The Energy Efficiency Design Index requires a

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minimum energy efficiency level per capacity mile and is applicable to new vessels, and the Ship Energy Efficiency Management Plan is applicable to currently operating vessels. The requirements, which entered into force in January 2013, were fully implemented by GasLog as of December 2012 and have been implemented by the Partnership as well. The IMO is also considering the development of a market-based mechanism for greenhouse gas emissions from ships, but it is impossible to predict the likelihood that such a standard might be adopted or its potential impact on our operations at this time.

The European Union has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from marine ships. In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has adopted regulations under the CAA to limit greenhouse gas emissions from certain mobile sources and large stationary sources. Although the mobile source emissions do not apply to greenhouse gas emissions from ships, the EPA is considering a petition from the California Attorney General and environmental groups to regulate greenhouse gas emissions from ocean-going ships. Any passage of climate control legislation or other regulatory initiatives by the IMO, the European Union, the United States or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant expenditures that we cannot predict with certainty at this time.

We believe that LNG carriers, which have the inherent ability to burn natural gas to power the ship, and in particular LNG carriers like ours that utilize fuel-efficient diesel electric propulsion, can be considered among the cleanest of large ships in terms of emissions.

Ship Security Regulations

A number of initiatives have been introduced in recent years intended to enhance ship security. On November 25, 2002, the Maritime Transportation Security Act of 2002, or “MTSA”, was signed into law. To implement certain portions of the MTSA, the U.S. Coast Guard issued regulations in July 2003 requiring the implementation of certain security requirements aboard ships operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. This new chapter came into effect in July 2004 and imposes various detailed security obligations on ships and port authorities, most of which are contained in the newly created International Ship and Port Facilities Security Code, or “ISPS Code”. Among the various requirements are:

 

 

on-board installation of automatic information systems to enhance ship-to-ship and ship-to-shore communications;

 

 

on-board installation of ship security alert systems;

 

 

the development of ship security plans; and

 

 

compliance with flag state security certification requirements.

The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt non-U.S. ships from MTSA ship security measures, provided such ships have on board a valid “International Ship Security Certificate” that attests to the ship’s compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures required by the IMO, SOLAS and the ISPS Code and have approved ISPS certificates and plans certified by the applicable flag state on board all our ships.

Legal Proceedings

We have not been involved in any legal proceedings that we believe may have a significant effect on our business, financial position, results of operations or liquidity, and we are not aware of any proceedings that are pending or threatened that may have a material effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally property damage and personal

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injury claims. We expect that these claims would be covered by insurance, subject to customary deductibles. However, those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

Taxation of the Partnership

Marshall Islands

Because we and our subsidiaries do not and will not conduct business or operations in the Republic of the Marshall Islands, neither we nor our subsidiaries will be subject to income, capital gains, profits or other taxation under current Marshall Islands law, and we do not expect this to change in the future. As a result, distributions we receive from the operating subsidiaries are not expected to be subject to Marshall Islands taxation.

United States

The following discussion is based on the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, all of which are subject to change, possibly with retroactive effect. This discussion does not address any U.S. state or local taxes. You are encouraged to consult your own tax advisor regarding the particular U.S. federal, state and local and foreign income and other tax consequences of acquiring, owning and disposing of our common units that may be applicable to you.

In General

We have elected to be treated as a corporation for U.S. federal income tax purposes. As such, except as provided below, we will be subject to U.S. federal income tax on our income to the extent such income is from U.S. sources or is otherwise effectively connected with the conduct of a trade or business in the United States.

U.S. Taxation of Our Subsidiaries

Our subsidiaries have elected (or are in the process of electing) to be treated as disregarded entities for U.S. federal income tax purposes. As a result, for purposes of the discussion below, our subsidiaries are treated (or will be treated) as branches rather than as separate corporations.

U.S. Taxation of Shipping Income

We expect that substantially all of our gross income will be attributable to income derived from the transportation of LNG pursuant to the operation of our LNG carriers. Gross income attributable to transportation exclusively between non-U.S. ports is considered to be 100% derived from sources outside the United States and generally not subject to any U.S. federal income tax. Gross income attributable to transportation that both begins and ends in the United States, or “U.S. Source Domestic Transportation Income”, is considered to be 100% derived from sources within the United States and generally will be subject to U.S. federal income tax. Although there can be no assurance, we do not expect to engage in transportation that gives rise to U.S. Source Domestic Transportation Income.

Gross income attributable to transportation, including shipping income, that either begins or ends, but that does not both begin and end, in the United States is considered to be 50% derived from sources within the United States (such 50% being “U.S. Source International Transportation Income”). Subject to the discussion of “effectively connected” income below, Section 887 of the Code would impose on us a 4% U.S. income tax in respect of our U.S. Source International Transportation Income (without the allowance for deductions) unless we are exempt from U.S. federal income tax on such income under the rules contained in Section 883 of the Code. The other 50% of the income described in the first sentence of this paragraph would not be subject to U.S. income tax.

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For this purpose, “shipping income” means income that is derived from:

(i) the use of ships;

(ii) the hiring or leasing of ships for use on a time, operating or bareboat charter basis;

(iii) the participation in a pool, partnership, strategic alliance, joint operating agreement or other joint venture we directly or indirectly own or participate in that generates such income; or

(iv) the performance of services directly related to those uses.

Under Section 883 of the Code and the regulations thereunder, we would be exempt from U.S. federal income tax on our U.S. Source International Transportation Income if:

 

(i)

 

we are organized in a foreign country (the “country of organization”) that grants an “equivalent exemption” to corporations organized in the United States with respect to the types of U.S. Source International Transportation Income that we may earn (an “Equivalent Exemption”);

 

(ii)

 

we satisfy the Publicly-Traded Test (as described below) or the 50% Ownership Test (as described below); and

 

(iii)

 

we meet certain substantiation, reporting and other requirements.

In order for a foreign corporation to meet the Publicly-Traded Test, its equity interests must be “primarily traded” and “regularly traded” on an established securities market in the United States or in a foreign jurisdiction that grants an Equivalent Exemption. The Treasury regulations under Section 883 of the Code provide, in pertinent part, that equity of a foreign corporation will be considered to be “primarily traded” on an established securities market in a country if, with respect to the class or classes of equity relied upon to meet the “regularly traded” requirement described below, the number of units of such class of equity that is traded during any tax year on all established securities markets in that country exceeds the number of equity interests in each such class that is traded during that year on established securities markets in any other single country. Our common units are the sole class of our equity that is traded, and such class is “primarily traded” on the NYSE, which is an established securities market for these purposes.

The Publicly-Traded Test also requires equity interests in a foreign corporation to be “regularly traded” on an established securities market. The Treasury regulations under Section 883 of the Code provide that equity interests in a foreign corporation are considered to be “regularly traded” on an established securities market if one or more classes of such equity interests that, in the aggregate, represent more than 50% of the combined vote and value of all outstanding equity interests in the foreign corporation satisfy certain listing and trading volume requirements. These listing and trading volume requirements will be satisfied with respect to a class of equity interests if (i) such equity interests are traded on the market, other than in minimal quantities, on at least 60 days during the tax year (or 1/6 of the days in a short tax year) and (ii) the aggregate number of equity interests in such class traded on such market during the tax year is at least 10% of the average number of equity interests outstanding in that class during such year (as appropriately adjusted in the case of a short tax year), provided, that if a class of equity interests is traded on an established securities market in the United States and is regularly quoted by dealers making a market in such equity interests then tests (i) and (ii) will be deemed satisfied.

Notwithstanding the foregoing, a class of equity interests may fail the regularly traded test if, for more than half the number of days during the tax year, persons who each own, either actually or constructively under certain attribution rules, 5% or more of the vote and value of the outstanding shares of the class of equity interests, or “5% Unitholders”, own in the aggregate 50% or more of the vote and value of the class of equity interests (which is referred to as the “Closely Held Block Exception”). The Closely Held Block Exception does not apply, however, if the foreign corporation can establish that a sufficient proportion of such 5% Unitholders are Qualified Shareholders (as defined below) so as to preclude the non-qualified 5% Unitholders from owning 50% or more of the total value of the class of equity interests for more than half the number of days during the tax year. If 50% or more of the vote and value of a class of equity interests is owned, in the aggregate, by 5% Unitholders, then a sufficient number of 5% Unitholders must verify that they are Qualified

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Shareholders by providing certain information to the foreign corporation, including information about their countries of residence for tax purposes and their actual and/or constructive ownership of such equity interests.

As an alternative to satisfying the Publicly-Traded Test, a foreign corporation may qualify for an exemption under Section 883 of the Code by satisfying the 50% Ownership Test. A corporation generally will satisfy the 50% Ownership Test if more than 50% of the value of its outstanding equity interests is owned, or treated as owned after applying certain attribution rules, for at least half the number of days in the tax year by individual residents of jurisdictions that grant an Equivalent Exemption, foreign corporations organized in jurisdictions that grant an Equivalent Exemption and that meet the Publicly-Traded Test, or certain other qualified persons described in the Treasury regulations under Section 883 (which are referred to collectively as “Qualified Shareholders”).

The Marshall Islands, the jurisdiction in which we are organized, grants an Equivalent Exemption with respect to the type of U.S. Source International Transportation Income we expect to earn. Therefore, we would be eligible for the exemption under Section 883 of the Code if we were to satisfy either the Publicly-Traded Test or the 50% Ownership Test and we satisfy certain substantiation, reporting or other requirements.

Following the completion of our follow-on public offering in September 2014, GasLog no longer held more than 50% of the value of our equity. As a result, for tax years after 2014, we no longer qualified for the 50% Ownership Test by virtue of GasLog’s ownership of our equity, even if GasLog itself qualifies under Section 883. Moreover, we will not qualify under the Publicly-Traded Test so long as our common unitholders have the right to elect only a minority of our directors. Therefore, we do not expect to qualify for the exemption from U.S. federal income tax under Section 883 during the 2016 tax year, unless our general partner exercises the “GasLog option” described below. For 2015, the accrued U.S. source gross transportation tax was $0.01 million.

Our general partner, which is a wholly owned subsidiary of GasLog, by virtue of its general partner interest, has an option (the “GasLog option”), exercisable at its discretion, to cause our common unitholders to permanently have the right to elect a majority of our directors. If that option is exercised, our common units would then be considered to have more than 50% of the voting power of all our equity. Our common units would then be considered to be “regularly traded” on an established securities market if they represented more than 50% of the value of all our equity and the listing and trading conditions described above are satisfied. Based upon our expected cash flow and distributions on our outstanding equity units, we expect that the common units will represent more than 50% of the value of our equity, and we expect that we will also satisfy the listing and trading requirements. However, we cannot assure you this will be the case. If these conditions are satisfied, and except as provided below, we would satisfy the Publicly-Traded Test unless the “Closely Held Block” exception to that test was applicable. If GasLog at that time satisfies the Publicly Traded Test, it would be a Qualified Shareholder of ours, to the extent it continued to own our common units, in determining whether the Closely Held Block Exception to the Publicly Traded Test applied.

In addition, our partnership agreement provides that any person or group (including GasLog) that beneficially owns more than 4.9% of any class of our units then outstanding generally will be treated as owning only 4.9% of such units for purposes of voting for directors. We cannot assure you that this limitation will be effective to eliminate the possibility that we will have any 5% Unitholders for purposes of the Closely Held Block Exception.

However, assuming this limitation is effective, we anticipate that, in the event that GasLog exercises the GasLog option, we will be able to satisfy the Publicly-Traded Test if our common units represent more than half the value of our equity.

However, we cannot assure you that we will be able to satisfy the Publicly-Traded Test in future years. There is no assurance that GasLog will exercise the GasLog option, which is necessary for us to satisfy the Publicly-Traded Test. Moreover, we cannot assure you that GasLog’s exercise of the GasLog option will be sufficient for us to satisfy the Publicly-Traded Test. In particular, we may not be able to satisfy the Publicly-Traded Test in the tax year during which GasLog exercises the

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GasLog option, because it is not clear if the Publicly-Traded Test must be satisfied on each day during the tax year and whether the exercise of the option would be considered effective immediately or only at the time of the unitholder meeting following exercise of the option. In addition, if an increase in the value of our incentive distribution rights causes our common units to fail the 50% value test, we will fail to satisfy the Publicly-Traded Test even if the option is exercised. Moreover, because we are in legal form a partnership, it is possible that the IRS would assert that our common units do not meet the “regularly traded” test. Furthermore, our board of directors could determine that it is in our best interests to take an action that would result in our not being able to satisfy the Publicly-Traded Test in the future. Should any of the requirements described above fail to be satisfied, we may not be able to satisfy the Publicly-Traded Test.

For any tax year in which we are not entitled to the exemption under Section 883, we would be subject to the 4% U.S. federal income tax under Section 887 on our U.S. Source International Transportation Income (subject to the discussion of “effectively connected income” below) for those years. In addition, our U.S. Source International Transportation Income that is considered to be “effectively connected” with the conduct of a U.S. trade or business is subject to the U.S. corporate income tax currently imposed at rates of up to 35% (net of applicable deductions). In addition, we may be subject to the 30% U.S. “branch profits” tax on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of our U.S. trade or business.

Our U.S. Source International Transportation Income would be considered effectively connected with the conduct of a U.S. trade or business only if:

 

(i)

 

we had, or were considered to have, a fixed place of business in the United States involved in the earning of U.S. source gross transportation income; and

 

(ii)

 

substantially all of our U.S. source gross transportation income was attributable to regularly scheduled transportation, such as the operation of a ship that followed a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States.

We believe that we will not meet these conditions because we will not have, or permit circumstances that would result in having, such a fixed place of business in the United States or any ship sailing to or from the United States on a regularly scheduled basis.

Taxation of Gain on Sale of Shipping Assets

Regardless of whether we qualify for the exemption under Section 883 of the Code, we will not be subject to U.S. income taxation with respect to gain realized on a sale of a ship, provided the sale is considered to occur outside of the United States (as determined under U.S. tax principles). In general, a sale of a ship will be considered to occur outside of the United States for this purpose if title to the ship (and risk of loss with respect to the ship) passes to the buyer outside of the United States. We expect that any sale of a ship will be so structured that it will be considered to occur outside of the United States.

Other Jurisdictions and Additional Information

For additional information regarding the taxation of our subsidiaries, see Note 21 to our audited combined and consolidated financial statements included elsewhere in this annual report.

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C. Organizational Structure

GasLog Partners is a publicly traded limited partnership formed in the Marshall Islands on January 23, 2014. The diagram below depicts our simplified organizational and ownership structure.

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As of February 11, 2016, we have nine subsidiaries, one is incorporated in the Marshall Islands and eight are incorporated in Bermuda. Of our subsidiaries, eight own vessels in our fleet. Our subsidiaries are wholly owned by us. A list of our subsidiaries is set forth in Exhibit 8.1 to this annual report.

D. Property, Plant and Equipment

Other than our ships, we do not own any material property. Our vessels are subject to priority mortgages, which secure our obligations under our various credit facilities. For information on our vessels, see “Item 4. Information on the Partnership—B. Business Overview—Our Fleet”. For further details regarding our credit facilities, refer to “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities”.

ITEM 4.A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report, our actual results may differ materially from those anticipated in these forward-looking statements. Please see the section “Forward-Looking Statements” at the beginning of this annual report.

Prior to the closing of the IPO, we did not own any vessels. Our IFRS Common Control Reported Results represent the results of GasLog Partners as an entity under the common control of GasLog. The following discussion assumes that our business was operated as a separate entity prior to its inception. The transfer of the three initial vessels from GasLog to the Partnership at the time of the IPO,the transfer of two vessels from GasLog to the Partnership in September 2014 and the transfer of three vessels from GasLog to the partnership in July 2015 were each accounted for as a reorganization of entities under common control under IFRS. Accordingly, the annual combined and consolidated financial statements and the accompanying discussion under “Results of Operations” include the accounts of the Partnership and its subsidiaries assuming that they are consolidated from the date of their incorporation by GasLog, as they were under the common control of GasLog.

For the periods prior to the closing of the IPO, our financial position, results of operations and cash flows reflected in our financial statements include all expenses allocable to our business, but may not be indicative of those that would have been incurred had we operated as a separate public entity for all years presented or of future results.

We manage our business and analyze and report our results of operations in a single segment.

Overview

We are a growth-oriented limited partnership focused on owning, operating and acquiring LNG carriers engaged in LNG transportation under long-term charters, which we define as charters of five full years or more. Our fleet of eight LNG carriers, which have charter terms expiring through 2020, were contributed to us by, or acquired from, GasLog, which controls us through its ownership of our general partner.

Our fleet consists of eight LNG carriers, including three vessels with modern TFDE propulsion technology and five Steam vessels that operate under long-term charters with MSL. We also have options and other rights under which we may acquire additional LNG carriers from GasLog, as described below. We believe that such options and rights provide us with significant built-in growth opportunities. We may also acquire vessels from shipyards or other owners.

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We operate our vessels under long-term charters with fixed-fee contracts that generate predictable cash flows. We intend to grow our fleet through further acquisitions of LNG carriers from GasLog and third parties. However, we cannot assure you that we will make any particular acquisition or that as a consequence we will successfully grow our per unit distributions. Among other things, our ability to acquire additional LNG carriers will be dependent upon our ability to raise additional equity and debt financing.

Items You Should Consider When Evaluating Our Historical Financial Performance and Assessing Our Future Prospects

Our result of operations, cash flows and financial conditions could differ from those that would have resulted if we operated autonomously or as an entity independent of GasLog in the years for which historical financial data is presented below, and such data may not be indicative of our future operating results or financial performance.

You should consider the following facts when evaluating our historical results of operations and assessing our future prospects:

 

 

The size of our fleet continues to change. Our historical results of operations, as reported under common control accounting, reflect changes in the size and composition of our fleet due to certain vessel deliveries. For example, each of the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney were delivered from the shipyard during 2013, and the Methane Rita Andrea the Methane Jane Elizabeth, the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally were acquired by GasLog during 2014, and did not have any historical operations in GasLog prior to that time. In addition, pursuant to the omnibus agreement, (i) we have the option to purchase from GasLog nine additional LNG carriers at fair market value as determined in accordance with the provisions of the omnibus agreement, and (ii) GasLog will be required to offer to us for purchase at fair market value, as determined in accordance with the omnibus agreement, any LNG carrier with a cargo capacity greater than 75,000 cbm engaged in oceangoing LNG transportation that GasLog owns or acquires if charters are secured with committed terms of five full years or more. Furthermore, we may grow through the acquisition in the future of other vessels as part of our growth strategy.

 

 

Our future results of operations may be affected by fluctuations in currency exchange rates. All of the revenue generated from our fleet is denominated in U.S. dollars, and the majority of our expenses, including debt repayment obligations under our credit facilities and a portion of our administrative expenses, are denominated in U.S. dollars. However, a portion of the ship operating expenses, primarily crew wages of officers, and a large portion of our administrative expenses are denominated in euros. The composition of our vessel operating expenses may vary over time depending upon the location of future charters and/or the composition of our crews. All of our financing and interest expenses are also denominated in U.S. dollars. We anticipate that all of our future financing agreements will also be denominated in U.S. dollars.

 

 

Our historical results of operations reflect costs that are not necessarily indicative of future administrative costs. The aggregate fees and expenses payable for services under the administrative services agreement, commercial management agreements and ship management agreements for the year ended December 31, 2015 were $3.59 million, $2.34 million and $3.82 million, respectively. As these amounts include fees and expenses for the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally only since their acquisition from GasLog in July 2015, the fees and expenses payable pursuant to these agreements will likely be higher for future periods than reflected in our results of operations for the year ended December 31, 2015. Additionally, these fees and expenses will be payable without regard to our business, results of operations and financial condition. For a description of the administrative services agreement, commercial management agreements and ship management agreements, see “Item 7. Major Unitholders and Related Party Transactions—B. Related Party Transactions”.

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Known Trends

As referenced in the Risk Factors above, in 2015, global crude oil prices were very volatile and fell significantly. Such decline in oil prices since 2014 has depressed natural gas prices and led to a narrowing of the gap in pricing in different geographic regions, which has adversely affected the length of voyages in the spot LNG shipping market and the spot rates and medium term charter rates for charters which commence in the near future. A continued decline in oil prices could adversely affect both the competitiveness of gas as a fuel for power generation and the market price of gas, to the extent that gas prices are benchmarked to the price of crude oil. Some production companies have announced delays or cancellations of certain previously announced LNG projects, which, unless offset by new projects coming on stream, could adversely affect demand for LNG charters over the next few years, while the amount of tonnage available for charter is expected to increase. Reduced demand for LNG or LNG shipping, or any reduction or limitation in LNG production capacity, could have a material adverse effect on our ability to secure future time charters at attractive rates and durations upon expiration or early termination of our current charter arrangements, for any ships for which we have not yet secured charters or for any new ships we acquire, which could harm our business, financial condition, results of operations and cash flows, including cash available for distribution to unitholders.

Our ships are currently all under multi-year contracts, the first of which does not expire until 2018 unless the charterer exercises its extension option. Unless LNG charter market conditions improve, we may have difficulty in securing renewed or new charters at attractive rates and durations on the ships when such multi-year charters expire. Such a failure could adversely affect our future liquidity and results of operations, as well as our ability to meet certain of our debt covenants. A sustained decline in charter rates could also adversely affect the market value of our ships, on which certain of the ratios and financial covenants we are required to comply with are based. However, in 2016, we expect projects coming onstream will add approximately 40 million tonnes (annualized) of new liquefaction capacity in both Australia and the US. In Australia, Australia Pacific Train 1 (4.5 million tonnes per annum (“mtpa”)) and Gladstone LNG (7.7 mtpa) have shipped their first cargoes in recent weeks and are expected to ramp up production through 2016. Other Australian projects due to start up in 2016 include Gorgon (15.6 mtpa), Australia Pacific Train 2 (4.5 mtpa), Prelude (3.6 mtpa) and Wheatstone (8.9 mtpa). The infrastructure for these projects has now largely been built and the majority of the volumes for these projects have already been sold.

Sabine Pass, one of five US projects under construction, is expected to export its first cargo in 2016. When construction is completed, Sabine Pass will have a total export capacity of 22.5 mtpa and will be the first US project to export LNG into the global market. The United States becoming an exporter of LNG is a welcome development for the LNG shipping sector as it creates new suppliers, new customers and new trade routes. The majority of US volumes have already been contracted with most expected to go into the Asian and European markets. This development will be positive for tonne mile demand as the US Gulf Coast to Asia voyage is approximately 9,000 nautical miles through the Panama Canal (which is not yet open to large LNG carriers). The same voyage around Cape Horn is approximately 13,000 nautical miles. From the U.S. Gulf Coast to northwest Europe, the distance is approximately 5,000 nautical miles. In 2014 and 2015, the average global LNG voyage was approximately 4,000 nautical miles, and therefore any voyage in excess of this distance will increase the global average distance and the need for LNG carriers.

Angola LNG (5.2 mtpa), which has been shut down for over a year for refurbishment and enhancements, is also due to restart in early 2016. Certain vessels that were chartered to Angola LNG have been operating in the spot market while the plant has been closed, and are expected to be put back into service for the project in 2016.

With the expected projects coming onstream, encouraging levels of tendering activity for vessels to transport increased LNG volumes is being noted. We continue to see a future shortfall of vessels that will be required for the Australian and US projects that have taken final investment decision and are currently under construction.

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A. Operating Results

Factors Affecting Our Results of Operations

We believe the principal factors that will affect our future results of operations include:

 

 

the number and availability of our LNG carriers and the other twelve GasLog LNG carriers that are or that we expect will be in the future subject to charters with committed terms of five full years or more upon delivery, and our ability to acquire any of GasLog’s other existing or future LNG carriers with cargo capacities greater than 75,000 cbm engaged in oceangoing LNG transportation, to the extent that charters are secured on these vessels with committed terms of five full years or more;

 

 

our ability to maintain a good working relationship with our existing customers and our ability to increase the number of our customers through the development of new working relationships;

 

 

the performance of our charterer;

 

 

the supply and demand relationship for LNG shipping services;

 

 

our ability to successfully re-employ our ships at economically attractive rates;

 

 

the effective and efficient technical management of our ships;

 

 

our ability to obtain acceptable debt financing in respect of our capital commitments;

 

 

our ability to obtain and maintain regulatory approvals and to satisfy technical, health, safety and compliance standards that meet our customers’ requirements; and

 

 

economic, regulatory, political and governmental conditions that affect shipping and the LNG industry, which include changes in the number of new LNG importing countries and regions, as well as structural LNG market changes impacting LNG supply that may allow greater flexibility and competition of other energy sources with global LNG use.

In addition to the general factors discussed above, we believe certain specific factors have impacted, or will impact, our results of operations. These factors include:

 

 

the hire rate earned by our ships;

 

 

unscheduled off-hire days;

 

 

the level of our ship operating expenses, including crewing costs, insurance and maintenance costs;

 

 

our level of debt, the related interest expense and the timing of required payments of principal;

 

 

mark-to-market changes in interest rate swaps and foreign currency fluctuations; and

 

 

the level of our general and administrative expenses, including salaries and costs of consultants.

See “Item 3. Key Information—D. Risk Factors” for a discussion of certain risks inherent in our business.

Principal Components of Revenues and Expenses

Revenues

Our revenues are driven primarily by the number of LNG carriers in our fleet, the amount of daily charter hire that they earn under time charters and the number of operating days during which they generate revenues. These factors, in turn, are affected by our decisions relating to ship acquisitions and disposals, the amount of time that our ships spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and technical specifications of our ships, as well as the relative levels of supply and demand in the LNG carrier charter market. Under the terms of some of our time charter arrangements, the operating cost component of the daily hire rate is intended to correspond to the costs of operating the ship. Accordingly, we will receive additional

65


 

revenue under such time charters through an annual escalation of the operating cost component of the daily hire rate. We believe these adjustment provisions can provide substantial protection against significant cost increases. See “Item 4. Information on the Partnership—B. Business Overview—Ship Time Charters—Hire Rate Provisions” for a more detailed discussion of the hire rate provisions of our charter contracts.

Our LNG carriers are employed through time charter contracts. Revenues under our time charters are recognized when services are performed, revenue is earned and the collection of the revenue is reasonably assured. The charter hire revenue is recognized on a straight-line basis over the term of the relevant time charter. We do not recognize revenue during days when the ship is off-hire, unless it is recoverable from insurers. Advance payments under time charter contracts are classified as liabilities until such time as the criteria for recognizing the revenue are met.

Vessel Operating Costs

We are generally responsible for ship operating expenses, which include costs for crewing, insurance, repairs, modifications and maintenance, lubricants, spare parts and consumable stores and other miscellaneous expenses, as well as the associated cost of providing these items and services. However, as described above, the hire rate provisions of our time charters are intended to reflect the operating costs borne by us. The charters on three vessels in our fleet contain hire rate provisions that provide for an automatic periodic adjustment, which is designed to reduce our exposure to increases in operating costs. Ship operating expenses are recognized as expenses when incurred.

Voyage Expenses and Commissions

Under our time charter arrangements, charterers bear substantially all voyage expenses, including bunker fuel, port charges and canal tolls, but not commissions. Commissions are recognized as expenses on a pro rata basis over the duration of the period of the time charter.

Depreciation

We depreciate the cost of our ships on the basis of two components: a vessel component and a drydocking component. The vessel component is depreciated on a straight-line basis over the expected useful life of each ship, based on the cost of the ship less its estimated residual value. We estimate the useful lives of our ships to be 35 years from the date of delivery from the shipyard. Management estimates residual value of its vessels to be equal to the product of its lightweight tonnage (“LWT”) and an estimated scrap rate per LWT, which represents our estimate of the market value of the ship at the end of its useful life.

We must periodically drydock each of our ships for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. All our ships are required to be drydocked for these inspections at least once every five years. At the time of delivery of a ship, we estimate the drydocking component of the cost of the ship, which represents the estimated cost of the ship’s first drydocking based on our historical experience with similar types of ships. The drydocking component of the ship’s cost is depreciated over five years, in the case of new ships, and until the next drydocking for secondhand ships, unless the Partnership determines to drydock the ships at an earlier date. In the event a ship is drydocked at an earlier date, the unamortized drydocking component is written-off immediately.

General and Administrative Expenses

General and administrative expenses consist primarily of legal and other professional fees, board of directors’ fees, share-based compensation expense, directors and officers liability insurance, travel and accommodation expenses, commercial management fees and administrative fees payable to GasLog.

66


 

Financial Costs

We incur interest expense on the outstanding indebtedness under our credit facilities and the swap arrangements, if any, that qualify for treatment as cash flow hedges for financial reporting purposes, which we include in our financial costs. Financial costs also include amortization of other loan issuance costs incurred in connection with establishing our credit facilities.

Interest expense and amortization of loan issuance costs are expensed as incurred.

Financial Income

Financial income consists of interest income, which will depend on the level of our cash deposits, investments and prevailing interest rates. Interest income is recognized on an accrual basis.

Gain/(Loss) on Interest Rate Swaps

Any gain or loss derived from the fair value of the interest rate swaps at their inception, the ineffective portion of changes in the fair value of the interest rate swaps that meet hedge accounting criteria and net interest on interest rate swaps held for trading, the movement in the fair value of the interest rate swaps that have not been designated as hedges and the amortization of the cumulative unrealized loss for the interest rate swaps that hedge accounting was discontinued are presented as gain or loss on interest rate swaps.

Results of Operations

Our results set forth below are derived from the annual combined and consolidated financial statements of the Partnership. Prior to the closing of our IPO, we did not own any vessels. The presentation assumes that our business was operated as a separate entity prior to its inception. The transfer of the three initial vessels from GasLog to the Partnership at the time of the IPO, the transfer of two vessels from GasLog to the Partnership in September 2014 and the transfer of an additional three vessels from GasLog to the Partnership in July 2015 were each accounted for as a reorganization of entities under common control under IFRS. The combined and consolidated financial statements include the accounts of the Partnership and its subsidiaries assuming that they are consolidated from the date of their incorporation by GasLog as they were under the common control of GasLog. For the periods prior to the closing of the IPO, our financial position, results of operations and cash flows reflected in our financial statements include all expenses allocable to our business, but may not be indicative of those that would have been incurred had we operated as a separate public entity for all years presented or of future results.

Three of our LNG carriers, the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney were delivered and immediately commenced their time charter with MSL in January, March and May 2013, respectively. In addition, the Methane Rita Andrea and the Methane Jane Elizabeth commenced their time charters with MSL, upon their acquisition by GasLog in April 2014. Finally, the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally commenced their time charters with MSL upon their acquisition by GasLog in June 2014.

The Partnership’s historical results were retroactively restated to reflect the historical results of these acquired entities during the periods they were owned by GasLog.

67


 

Year ended December 31, 2014 compared to the year ended December 31, 2015

 

 

 

 

 

 

 

 

 

IFRS Common Control Reported Results

 

2014

 

2015

 

Change

 

 

(in thousands of U.S. dollars)

Statement of profit or loss

 

 

 

 

 

 

Revenues

 

 

 

158,170

 

 

 

 

199,689

 

 

 

 

41,519

 

Vessel operating costs

 

 

 

(30,752

)

 

 

 

 

(42,788

)

 

 

 

 

(12,036

)

 

Voyage expenses and commissions

 

 

 

(2,028

)

 

 

 

 

(2,442

)

 

 

 

 

(414

)

 

Depreciation

 

 

 

(33,931

)

 

 

 

 

(44,253

)

 

 

 

 

(10,322

)

 

General and administrative expenses.

 

 

 

(6,382

)

 

 

 

 

(10,986

)

 

 

 

 

(4,604

)

 

 

 

 

 

 

 

 

Profit from operations

 

 

 

85,077

 

 

 

 

99,220

 

 

 

 

14,143

 

 

 

 

 

 

 

 

Financial costs

 

 

 

(33,393

)

 

 

 

 

(27,202

)

 

 

 

 

6,191

 

Financial income

 

 

 

40

 

 

 

 

26

 

 

 

 

(14

)

 

Loss on interest rate swaps

 

 

 

(8,078

)

 

 

 

 

 

 

 

 

8,078

 

 

 

 

 

 

 

 

Profit for the year

 

 

 

43,646

 

 

 

 

72,044

 

 

 

 

28,398

 

 

 

 

 

 

 

 

Profit attributable to Partnership’s operations

 

 

 

14,544

 

 

 

 

65,040

 

 

 

 

50,496

 

 

 

 

 

 

 

 

During the year ended December 31, 2014, we had an average of 6.1 vessels operating in our owned fleet having 2,222 operating days while during the year ended December 31, 2015, we had an average of 8 vessels operating in our owned fleet having 2,855 operating days.

Revenues: Revenues increased by $41.52 million, or 26.25%, from $158.17 million for the year ended December 31, 2014, to $199.69 million for the year ended December 31, 2015. The increase is mainly attributable to the deliveries of the Methane Rita Andrea and the Methane Jane Elizabeth on April 10, 2014, and the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally on June 4, 2014, June 11, 2014 and June 25, 2014, respectively, and the commencement of their charter party agreements. These deliveries resulted in an increase in operating days. In addition, the vessels delivered during 2014 were generating revenue for the full year in 2015 as compared to 2014. The increase in revenues was partially offset by a decrease of $4.38 million caused mainly by the off-hire days due to the drydockings of the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally. The average daily hire rate for the year ended December 31, 2014 was $71,183 as compared to $69,944 for the year ended December 31, 2015.

Vessel Operating Costs: Vessel operating costs increased by $12.04 million, or 39.15%, from $30.75 million for the year ended December 31, 2014, to $42.79 million for the year ended December 31, 2015. The increase is mainly attributable to the increased operating days in the year ended December 31, 2015 and the increased average daily operating cost per vessel from $13,790 per day in 2014 to $14,654 per day in 2015, reflecting increased technical maintenance expenses due to planned underwater inspections and maintenance of the main engines for three of our vessels and other repairs that were undertaken during the drydocking of the three vessels acquired from GasLog in 2015, partially offset by the decrease in crew wages denominated in euros due to the decrease in the average USD/EUR exchange rate between the two periods.

Voyage expenses and commissions: Voyage expenses and commissions increased by $0.41 million, or 20.20%, from $2.03 million for the year ended December 31, 2014, to $2.44 million for the year ended December 31, 2015. The increase is mainly attributable to the increased operating days in the year ended December 31, 2015.

Depreciation: Depreciation increased by $10.32 million, or 30.42%, from $33.93 million for the year ended December 31, 2014, to $44.25 million for the year ended December 31, 2015. The increase is mainly attributable to the deliveries of the Methane Rita Andrea and the Methane Jane Elizabeth in April 2014 and the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally in June 2014 and the fact that depreciation charges for that period commenced from each vessel’s delivery date to December 31, 2014, compared to the year ended December 31, 2015 where the vessels were in operation for the entire year.

68


 

General and Administrative Expenses: General and administrative expenses increased by $4.61 million, or 72.26%, from $6.38 million for the year ended December 31, 2014, to $10.99 million for the year ended December 31, 2015. The increase is mainly attributable to an increase in administrative expenses of $2.40 million for services under the administrative services agreement with GasLog, which went into effect on May 12, 2014, the closing date of our IPO, an increase of $0.94 million in legal and professional fees related to the requirements of being a public company, an increase in commercial management fees of $0.49 million related to the acquisition of the five vessels, an increase of board of directors’ fees of $0.42 million, an increase of $0.21 million in the non-cash expense recognized in respect of share-based compensation and an increase in directors and officers’ liability insurance of $0.09 million.

Financial Costs: Financial costs decreased by $6.19 million, or 18.54%, from $33.39 million for the year ended December 31, 2014, to $27.20 million for the year ended December 31, 2015. The decrease is mainly attributable to a write-off of unamortized loan fees of $9.02 million in connection with the repayment of the existing loan facilities in 2014 and termination fees for the aforementioned debt of $1.23 million, which was partially offset by an increase in interest expense by $4.20 million. During the year ended December 31, 2015, we had an average of $789.90 million of outstanding indebtedness, with a weighted average interest rate of 3.00%, compared to an average of $665.47 million of outstanding indebtedness with a weighted average interest rate of 2.93% during the year ended December 31, 2014.

Loss on Interest Rate Swaps: Loss on interest rate swaps decreased by $8.08 million, from $8.08 million for the year ended December 31, 2014, to $0 for the year ended December 31, 2015. In the year ended December 31, 2015, there were no outstanding interest rate swaps as they were terminated in 2014, in connection with the refinancing of the relevant debt in 2014.

Profit for the Period: Profit for the year increased by $28.39 million, or 65.04% from $43.65 million for the year ended December 31, 2014, to $72.04 million for the same period in 2015, as a result of the aforementioned factors.

Profit attributable to the Partnership: Profit attributable to the Partnership for the year increased by $50.50 million, from $14.54 million for the year ended December 31, 2014, to $65.04 million for the year ended December 31, 2015. The increase is mainly attributable to the increase in operating days (885 operating days in the year ended December 31, 2014 as compared to 2,377 operating days in the year ended December 31, 2015).

Specifically, the five vessels acquired by the Partnership in 2014 and the acquisition of the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally on July 1, 2015 resulted in (a) an increase in revenues attributable to the Partnership by $103.0 million, from $65.93 million for the year ended December 31, 2014, to $168.93 million for the year ended December 31, 2015 (the average daily hire rate for the year ended December 31, 2014 was $74,498 as compared to $71,067 for the year ended December 31, 2015), (b) an increase in operating expenses attributable to the Partnership by $21.43 million, from $12.23 million for the year ended December 31, 2014, to $33.66 million for the year ended December 31, 2015 (the average daily operating expenses for the year ended December 31, 2014 was $13,815 per day as compared to $14,159 per day for the year ended December 31, 2015), (c) an increase in depreciation expense attributable to the Partnership by $22.63 million, from $13.35 million for the year ended December 31, 2014, to $35.98 million for the year ended December 31, 2015 and (d) an increase in voyage expenses and commissions attributable to the Partnership by $1.29 million, from $0.08 million for the year ended December 31, 2014, to $2.10 million for the year ended December 31, 2015.

In addition, the profit attributable to the Partnership was further affected by (a) an increase in general and administrative expenses attributable to the Partnership by $5.79 million, from $4.59 million for the year ended December 31, 2014, to $10.38 million for the year ended December 31, 2015 which is mainly attributable to an increase in administrative fees, commercial management fees, legal and professional fees related to the requirements of being a public company, directors’ fees, non-cash expense in respect of share-based compensation and directors and officers’ liability insurance and (b) an increase in net financial costs attributable to the Partnership by

69


 

$1.36 million, from $20.40 million for the year ended December 31, 2014, to $21.76 million for the year ended December 31, 2015.

The above discussion of revenues, operating expenses, depreciation expense, voyage expenses and commissions, general and administrative expenses and net financial costs attributable to the Partnership are non-GAAP measures that exclude amounts related to vessels currently owned by the Partnership for the periods prior to their respective transfer to GasLog Partners from GasLog. See “Item 3. Key Information—A. Selected Financial Data—A.2. Partnership Performance Results” for further discussion of these “Partnership Performance Results” and a reconciliation to the most directly comparable IFRS reported results (the “IFRS Common Control Reported Results”).

Year ended December 31, 2013 compared to the year ended December 31, 2014

 

 

 

 

 

 

 

 

 

IFRS Common Control Reported Results

 

2013

 

2014

 

Change

 

 

(in thousands of U.S. dollars)

Statement of profit or loss

 

 

 

 

 

 

Revenues

 

 

 

64,143

 

 

 

 

158,170

 

 

 

 

94,027

 

Vessel operating costs

 

 

 

(12,311

)

 

 

 

 

(30,752

)

 

 

 

 

(18,441

)

 

Voyage expenses and commissions

 

 

 

(786

)

 

 

 

 

(2,028

)

 

 

 

 

(1,242

)

 

Depreciation

 

 

 

(12,238

)

 

 

 

 

(33,931

)

 

 

 

 

(21,693

)

 

General and administrative expenses.

 

 

 

(1,525

)

 

 

 

 

(6,382

)

 

 

 

 

(4,857

)

 

 

 

 

 

 

 

 

Profit from operations

 

 

 

37,283

 

 

 

 

85,077

 

 

 

 

47,794

 

 

 

 

 

 

 

 

Financial costs

 

 

 

(12,133

)

 

 

 

 

(33,393

)

 

 

 

 

(21,260

)

 

Financial income

 

 

 

32

 

 

 

 

40

 

 

 

 

8

 

Gain/(loss) on interest rate swaps

 

 

 

1,036

 

 

 

 

(8,078

)

 

 

 

 

(9,114

)

 

 

 

 

 

 

 

 

Profit for the year

 

 

 

26,218

 

 

 

 

43,646

 

 

 

 

17,428

 

 

 

 

 

 

 

 

Profit attributable to Partnership’s operations

 

 

 

 

 

 

 

14,544

 

 

 

 

14,544

 

 

 

 

 

 

 

 

During the year ended December 31, 2013, we had an average of 2.3 vessels operating in our owned fleet having 833 operating days while during the year ended December 31, 2014, we had an average of 6.1 vessels operating in our owned fleet having 2,222 operating days.

Revenues: Revenues increased by $94.03 million, or 146.60%, from $64.14 million for the year ended December 31, 2013, to $158.17 million for the year ended December 31, 2014. The increase is mainly attributable to the deliveries of the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney, on January 28, 2013, March 25, 2013 and May 30, 2013, respectively, the Methane Rita Andrea and the Methane Jane Elizabeth on April 10, 2014, and the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally on June 4, 2014, June 11, 2014 and June 25, 2014, respectively, and the commencement of their charter party agreements.

Vessel Operating Costs: Vessel operating costs increased by $18.44 million, or 149.80%, from $12.31 million for the year ended December 31, 2013, to $30.75 million for the year ended December 31, 2014. The increase is mainly attributable to the increased operating days in the year ended December 31, 2014.

Voyage expenses and commissions: Voyage expenses and commissions increased by $1.24 million, or 156.96%, from $0.79 million for the year ended December 31, 2013, to $2.03 million for the year ended December 31, 2014. The increase is mainly attributable to the increased operating days in the year ended December 31, 2014.

Depreciation: Depreciation increased by $21.69 million, or 177.21%, from $12.24 million for the year ended December 31, 2013, to $33.93 million for the year ended December 31, 2014. The increase is mainly attributable to the deliveries of the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney in various days during 2013 and the fact that depreciation charges for that period commenced from each vessel’s delivery date to December 31, 2013, compared to the year ended December 31, 2014 where the vessels were in operation for the whole period in addition to

70


 

the depreciation expense of the Methane Rita Andrea and the Methane Jane Elizabeth delivered in April 2014 and the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally delivered in June 2014.

General and Administrative Expenses: General and administrative expenses increased by $4.85 million, or 316.99%, from $1.53 million for the year ended December 31, 2013, to $6.38 million for the year ended December 31, 2014. The increase is mainly attributable to the board of directors’ fees of $0.67 million, an increase in commercial and administrative fees of $2.56 million, a $1.07 million increase in legal and professional fees, a $0.33 million increase in directors’ and officers’ liability insurances and an increase of $0.22 million in all other expenses.

Financial Costs: Financial costs increased by $21.26 million, or 175.27%, from $12.13 million for the year ended December 31, 2013, to $33.39 million for the year ended December 31, 2014. The increase is mainly attributable to a $9.02 million write-off of the unamortized fees in connection with the repayment of the then existing debt facilities, an increase of $1.38 million in amortization of loan fees, an increase of $1.23 million in termination fees, an increase of $9.41 million in interest expense on loans and cash flow hedges and an increase of $0.22 million in all other financial costs. During the year ended December 31, 2014, we had an average of $665.47 million of outstanding indebtedness, having an aggregate weighted average interest rate of 2.93%, compared to an average of $315.5 million of outstanding indebtedness with a weighted average interest rate of 3.24% during the year ended December 31, 2013.

Gain/(Loss) on Interest Rate Swaps: Gain on interest rate swaps decreased by $9.12 million, from a gain of $1.04 million for the year ended December 31, 2013, to a loss of $8.08 million for the year ended December 31, 2014. The decrease is mainly attributable to a $3.84 million decrease in gain from the mark-to-market valuation of our interest rate swaps which are carried at fair value through profit or loss and an increase of $4.82 million in recycled loss of cash flow hedges reclassified to profit or loss resulting mainly from the termination of the relevant swap contracts and an increase of $0.44 million in realized loss on interest rate swaps held for trading. As of December 31, 2014, the Partnership had no interest rate swaps in effect.

Profit for the Period: Profit for the year increased by $17.43 million, or 66.48%, from $26.22 million for the year ended December 31, 2013, to $43.65 million for the same period in 2014, as a result of the aforementioned factors.

Profit attributable to the Partnership: Profit attributable to the Partnership for the year increased by $14.54 million, from $0 million for the year ended December 31, 2013, to $14.54 million for the same period in 2014. The increase is attributable to the operations of the three initial vessels acquired from GasLog at the time of the IPO and the two vessels transferred from GasLog in September 2014. The Partnership did not have any operations in the year ended December 31, 2013, therefore there was no profit attributable to the Partnership during such period. See “Item 3. Key Information—A. Selected Financial Data—A.2. Partnership Performance Results” for further discussion of these “Partnership Performance Results” and a reconciliation to the most directly comparable IFRS reported results (the “IFRS Common Control Reported Results”).

Customers

We currently derive all of our revenues from one customer, MSL, a subsidiary of BG Group which is expected to be acquired by Shell, as approved in shareholder meetings held on January 27 and 28, 2016.

Seasonality

Since our vessels are employed under multi-year, fixed-rate charter arrangements, seasonal trends do not impact the revenues during the year.

71


 

B. Liquidity and Capital Resources

We operate in a capital-intensive industry, and we expect to finance the purchase of additional vessels and other capital expenditures through a combination of borrowings from commercial banks, cash generated from operations and debt and equity financings. In addition to paying distributions, our other liquidity requirements relate to servicing our debt, funding investments, funding working capital and maintaining cash reserves against fluctuations in operating cash flows. Our funding and treasury activities are intended to maximize investment returns while maintaining appropriate liquidity.

On September 29, 2014, GasLog Partners completed a follow-on public offering of 4,500,000 common units at a public offering price of $31.00 per unit. The net proceeds from this offering after deducting underwriting discounts and other offering expenses were $133.0 million. In connection with the offering, the Partnership issued 91,837 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. The net proceeds from the issuance of the general partner units were $2.85 million. The total net proceeds of $135.85 million were used to partially finance the acquisition from GasLog of 100% of the ownership interests in GAS-sixteen Ltd. and GAS-seventeen Ltd., the entities that own two 145,000 cbm LNG carriers, the Methane Rita Andrea and the Methane Jane Elizabeth, respectively, for an aggregate purchase price of $328.0 million.

On June 26, 2015, GasLog Partners completed an equity offering of 7,500,000 common units at a public offering price of $23.90 per unit. The net proceeds from this offering after deducting underwriting discounts and other offering expenses were $171.83 million. In connection with this offering, the Partnership issued 153,061 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. The net proceeds from the issuance of the general partner units were $3.66 million. The total net proceeds of $175.49 million were used to finance the acquisition from GasLog of 100% of the ownership interests in GAS-nineteen Ltd., GAS-twenty Ltd. and GAS-twenty one Ltd., the entities that own three 145,000 cbm LNG carriers, the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally, respectively, which were acquired on July 1, 2015 for an aggregate purchase price of $483.0 million.

As of December 31, 2015, we had $60.40 million of cash and cash equivalents.

As of December 31, 2015, we had an aggregate of $748.0 million of indebtedness outstanding under our credit facilities, including $15.0 million outstanding under the Partnership’s revolving credit facility with GasLog. An amount of $328.0 million of outstanding debt is repayable within one year. Current debt includes $305.50 million from the outstanding indebtedness of GAS-nineteen Ltd., GAS-twenty Ltd. and GAS-twenty one Ltd. (the owners of the Methane Alison Victoria, the Methane Shirley Elisabeth and the Methane Heather Sally, respectively), assumed on their acquisition. We have entered into an underwritten agreement with certain financial institutions to refinance our current debt. Syndication is complete and we are proceeding with documentation. We expect to execute definitive documentation well in advance of the maturity of all associated indebtedness.

On May 8, 2015, the Partnership entered into a supplemental deed relating to its Citibank loan facility, in which the Partnership’s lenders unanimously approved changes to the facility agreement to reflect the amendments to the three time charters agreed with BG Group on April 21, 2015.

On June 5, 2015, the Partnership entered into a corporate guarantee pursuant to which it guarantees the obligations of GAS-nineteen Ltd., GAS-twenty Ltd. and GAS-twenty one Ltd. under their Citibank credit facility.

Depending on market conditions, we may use derivative financial instruments to reduce the risks associated with fluctuations in interest rates. We expect over time to economically hedge a proportion of our exposure to interest rate fluctuations in the future by entering into new interest rate swap contracts.

The Partnership currently has not hedged any part of its floating interest rate exposure.

72


 

Working Capital Position

As of December 31, 2015, our current assets totaled $70.36 million while current liabilities totaled $353.09 million, resulting in a negative working capital position of $282.73 million. Current liabilities include $328.0 million of loans due within one year, $305.50 million of which we are currently discussing to refinance with the balance of $22.50 million representing scheduled amortization of other indebtedness. We have entered into an underwritten agreement with certain financial institutions to refinance our current debt. Syndication is complete and we are proceeding with documentation. We expect to execute definitive documentation well in advance of the maturity of all associated existing indebtedness.

Other than the refinancing requirements noted above, and taking into account generally expected market conditions, we anticipate that cash flow generated from operations will be sufficient to fund our operations, including our working capital requirements, and to make the required principal and interest payments on our indebtedness during the next 12 months.

Cash Flows

Year ended December 31, 2014 compared to the year ended December 31, 2015

The following table summarizes our net cash flows from operating, investing and financing activities for the years indicated:

 

 

 

 

 

 

 

Year ended December 31,

 

2014

 

2015

 

 

(in thousands of
U.S. dollars)

Net cash provided by operating activities

 

 

$

 

109,598

 

 

 

$

 

113,230

 

Net cash (used in)/provided by investing activities

 

 

 

(807,766

)

 

 

 

 

14,592

 

Net cash provided by/(used in) financing activities.

 

 

 

731,005

 

 

 

 

(114,662

)

 

Net Cash Provided by Operating Activities:

Net cash provided by operating activities increased by $3.63 million, from $109.60 million in the year ended December 31, 2014, to $113.23 million in the year ended December 31, 2015. The increase of $3.63 million is mainly attributable to an increase of $32.36 million in revenue collections, a decrease of $2.34 million in realized losses on interest rate swaps held for trading and a decrease of $1.95 million in cash paid for interest, which was partially offset by an increase of $33.02 million in payments for general and administrative expenses, operating expenses and inventories.

Net Cash (Used in)/Provided by Investing Activities:

Net cash provided by investing activities increased by $822.36 million, from net cash used in investing activities of $807.77 million in the year ended December 31, 2014, to net cash provided by investing activities of $14.59 million in the year ended December 31, 2015. The increase of $822.36 million is mainly attributable to a decrease of net cash used in payments for vessels of $780.46 million and an increase in net cash from short-term investments of $41.90 million.

Net Cash Provided by/(Used in) Financing Activities:

Net cash provided by financing activities decreased by $845.67 million, from net cash provided by financing activities of $731.01 million in the year ended December 31, 2014, to net cash used in financing activities of $114.66 million in the year ended December 31, 2015. The decrease of $845.67 million is attributable to proceeds from borrowings of $1,022.50 million in the year ended December 31, 2014, capital contributions received of $232.56 million in 2014, decreased net public offering proceeds of $146.54 million, an increase in distributions of $37.82 million, which was partially offset by a decrease of $554.40 million in bank loan repayments, a decrease of $11.27 million in cash remittance to GasLog in exchange for contribution of net assets, a decrease of

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$12.41 million in payments of loan issuance costs, a decrease of $1.95 million in payments of dividends due prior to vessels’ drop-down to GasLog and the repayment in 2014 of advances from unitholders of $13.72 million.

Year ended December 31, 2013 compared to the year ended December 31, 2014

The following table summarizes our net cash flows from operating, investing and financing activities for the years indicated:

 

 

 

 

 

 

 

Year ended December 31,

 

2013

 

2014

 

 

(in thousands of
U.S. dollars)

Net cash provided by operating activities

 

 

$

 

32,159

 

 

 

$

 

109,598

 

Net cash used in investing activities

 

 

 

(454,263

)

 

 

 

 

(807,766

)

 

Net cash provided by financing activities.

 

 

 

436,506

 

 

 

 

731,005

 

Net Cash Provided by Operating Activities:

Net cash provided by operating activities increased by $77.44 million, from $32.16 million in the year ended December 31, 2013, to $109.60 million in the year ended December 31, 2014. The increase of $77.44 million was due to an increase of $96.90 million in revenue collections, partially offset by an increase of $15.97 million in cash paid for interest, an increase of $3.05 million in payments for general and administrative expenses, operating expenses and inventories and $0.44 million net interest settlement payments relating to interest rate swaps held for trading.

Net Cash Used in Investing Activities:

Net cash used in investing activities increased by $353.51 million, from a $454.26 million in the year ended December 31, 2013, to a $807.77 million in the year ended December 31, 2014. The increase is mainly attributable to an increase of $334.81 million in payments for vessels and a $18.70 million increase in the net outflow for short-term investments.

Net Cash Provided by Financing Activities:

Net cash provided by financing activities increased by $294.50 million to $731.01 million in the year ended December 31, 2014, compared to $436.51 million during the year ended December 31, 2013. The increase of $294.50 million is mainly attributable to an increase of $611.50 million in the amounts drawn from loan facilities, the net IPO and equity raising proceeds of $321.98 million and a net increase of $204.50 in capital contributions, offset by an increase of $608.95 million in bank loan repayments and payments of loan issuance costs, a cash remittance of $183.90 million to GasLog in exchange for its contribution of net assets, a decrease of $27.46 million due to the repayment of advances to shareholders, the distribution of $13.37 million to the unitholders in 2014 and the $9.80 million payment of the pre-IPO dividend.

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Borrowing Activities

Credit Facilities

Below is a summary of certain provisions of the Partnership’s credit facilities outstanding as of December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility Name

 

Lender(s)

 

Subsidiary Party
(Collateral Ship)

 

Outstanding
Principal
Amount

 

Interest Rate

 

Maturity

 

Payment
Installments
Schedule

Partnership Facility

 

Citibank, N.A., London Branch, Nordea Bank Finland plc, London Branch, DVB Bank America N.V., ABN Amro Bank N.V., Skandinaviska Enskilda Banken AB (publ), BNP Paribas

 

GAS-three Ltd. (GasLog Shanghai), GAS-four Ltd. (GasLog Santiago), GAS- five Ltd. (GasLog Sydney), GAS- sixteen Ltd. (Methane Rita Andrea), GAS- seventeen Ltd. (Methane Jane Elizabeth)

 

$427.50 million

 

LIBOR + applicable margin

 

2019

 

16 consecutive quarterly installments of $5.625 million and a balloon payment of $337.5 million together with the final quarterly payment

 

Sponsor Credit Facility

 

GasLog Ltd.

 

GasLog Partners LP

 

$15.0 million

 

Fixed interest rate

 

2017

 

Revolving facility of $30.0 million available in minimum amounts of $2.0 million which are repayable within a period of six months after the respective drawdown date, subject to automatic renewal if not repaid

 

Assumed Facility

 

Citibank, N.A., London Branch,

 

GAS-nineteen Ltd. (Methane Alison Victoria) GAS-twenty Ltd. (Methane Shirley Elisabeth) GAS- twenty one Ltd. (Methane Heather Sally)

 

$305.50 million

 

LIBOR + applicable margin

 

2016

 

Balloon payment of $305.50 million due in 2016 without intermediate payments.(1)

 

 

(1)

 

We have entered into an underwritten agreement with certain financial institutions to refinance our current debt. Syndication is complete and we are proceeding with documentation. We expect to execute definitive documentation well in advance of the maturity of all associated existing indebtedness.

Partnership Facility

The Partnership Facility is secured as follows:

 

 

first priority mortgages over the vessels owned by the borrowers;

 

 

guarantees from us and our subsidiary GasLog Partners Holdings;

 

 

a pledge or a negative pledge of the share capital of the borrowers; and

 

 

a first priority assignment of all earnings and insurances related to the vessels owned by the borrowers.

Our Partnership Facility imposes certain operating and financial restrictions on our subsidiaries, which generally limit our subsidiaries’ ability to, among other things:

 

  incur additional indebtedness, create liens or provide guarantees;

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provide any form of credit or financial assistance to, or enter into any non-arms’ length transactions with, us or any of our affiliates;

 

 

sell or otherwise dispose of assets, including our ships;

 

 

engage in merger transactions;

 

 

enter into, terminate or amend any charter;

 

 

amend our shipbuilding contracts, if any;

 

 

change the manager of our ships;

 

 

undergo a change in ownership; or

 

 

acquire assets, make investments or enter into any joint venture arrangements outside of the ordinary course of business.

Our Partnership Facility also imposes specified financial covenants that apply to us and our subsidiaries on a consolidated basis. These financial covenants include the following:

 

 

the aggregate amount of all unencumbered cash and cash equivalents must be no less than the higher of 3% of total indebtedness or $15 million;