Michael Gregos - Chief Financial Officer.

Randy Givens - Jefferies Fotis Giannakoulis - Morgan Stanley.

Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners Conference Call on the Third Quarter 2018 Financial Results. We have with us Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode.

[Operator Instructions] I must advise that this conference is being recorded today. At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect Dynagas LNG Partners' business prospects and results of operations. Such risks are more fully disclosed in Dynagas LNG Partners filings with the Securities and Exchange Commission. And now I pass the floor to Mr. Gregos. Please go ahead, sir..

Good morning, everyone, and thank you for joining us in our third quarter earnings conference call. We have issued a press release announcing our results for the same period. Certain non-GAAP measures will be discussed on this call.

And we have provided a description of those measures, as well as a discussion of why we believe this information to be useful in our press release. Moving on to Slide 3 and the recent developments.

In August, the Yenisei River upon completion of its mandatory five years special survey and dry-docking was delivered earlier than anticipated to its charter contract with Yamal in order to serve the Yamal LNG project with the firm charter period being extended from 15 years to 15.5 years.

In addition, the Arctic Aurora extend the time charter contract with Equinor, and following this contract all of the partnership vessels are contracted as we will describe later in the presentation. On October 23rd, we closed our Series B preferred units offering and receive net proceeds of $53 million.

And on October 11th, the partnership announced the quarterly cash distributions of $0.25 per common unit in respect to the third quarter of 2018, which was paid on October 26th.

Moving on to Slide 4, the results of the quarter met our expectations as fleet utilization was 99% and operating expenses and the dry-docking of the Yenisei River were below budget. For the quarter, we generated $7.5 million in distributable cash flow and $23.5 million in EBITDA.

We are pleased with the performance of our manager as vessel's daily operating expenses came in at $11,600 per day, per vessel for the quarter versus $11,200 for the corresponding period of 2017. And the cost of the dry-docking of Yenisei River ended at about $2.4 million, which is $1 million below the budget, with only 16 of higher days.

For the quarter, our average gross time charter higher on a cash basis amounted to about $60,000 per day per vessel whereas our cash breakeven, excluding our distributions to preferred and common unitholders and our dry-docking costs amounted to about $40,000 per day.

During the past two years, all of our vessels have completed their 5-year mandatory class special surveys and dry-docks, while at the same time, they are gradually transitioning into their previously entered into long-term contracts. In October, the Lena River completed its dry dock and subsequently entered its prime chart with the U.S.

energy producer pending or delivery to the Yamal contract next year. Following the completion of the Lena River special survey and dry-dock in October, the partnership has no scheduled dry-docks until 2022. Moving onto Slide 6.

For the quarter, our distributable cash flow available to common unitholders at the famous preferred unitholders amounted to $5.8 million and we paid $8.9 million in cash distribution to our common unitholders, resulting in a distribution coverage ratio of 0.66x.

For the quarter, we have cash coverage ratio of one times with cash coverage representing adjusted EBITDA, less interest loan principal and preferred equity dividends, divided by actual distributions to common unitholders.

As previously advised, our distribution coverage was expected to be -- need to be below one times, with the current distribution being partly funded by cash on hand.

Moving on to Slide 6, there is a high level of visibility and predictability in our future cash flow generating capacity given that all of our LNG carriers are employed and long-term contracts with an average contract duration of approximately 10 years.

Our simplified debt structure is composed of $474 million Term Loan B, which is amortizing annually by $4.8 million and which are the floating interest rates and $250 million unsecured most, which mature in October 30, 2019, and which we expect to refinance in advance of their maturity.

Our capital structure also consists of $130 million, and preferred equity consisting our 9%, $75 million Series A preferred, and our 8.7%, $55 million Series B preferred issued last month. At the end of the quarter, we have liquidity of $89.5 million and the net debt to last 12 months EBITDA of 6.6x.

Our net debt to total capitalization amounts to 62% pro forma our $55 million preferred equity issuance, which is an improvement in the previous quarter. With respect to the refinancing of our $250 million unsecured notes, we are exploring a number of alternatives and are keeping all of our options opened.

As part of this exercise, we’re currently performing a strategic review, which will also encompass our financial objectives with respect to improving our financial credit profile, our liquidity and growth prospects.

Moving on to Slide 7, our fleet count accounts six type specification and versatile LNG carriers with an average age of about 8.3 years in an industry where expected useful economic lifetime is 35 years.

Our long-term contracts with Gazprom, Equinor and Yamal LNG, a joint venture between Total, CNPC, Novatek and the Silk Road Fund showed well-established LNG export projects in icebound areas.

Our clients have entered into long-term offtake agreement with LNG users, and our vessels are vital to their efforts to monetize their production of natural gas. Our $1.4 billion in remaining contracted revenue and over 10 years of average remaining contract life provides the partnership to the benefit to stable cash flows and high utilization rates.

Our contract backlog amounts to $230 million per vessel, which is best in class on a per vessel basis versus our peers. Our fleet is fully contracted through 2020, and 92% contracted in 2021 assuming that Equinor does not exercise its option to expand the Arctic Aurora contract.

Beyond 2021, 80% of our fleet is contracted until 2026 in which one charter expires. Thereafter, we have two charter expires in 2028, and two in 2034. Moving on to Slide 8, the drivers for our long-term charters were with unique characteristics of our high specification fleet, including their Ice Class capabilities and our managers' track record.

Our fleet is able to operate across the globe, including icebound areas and under the harshest weather conditions. This means that we’re able to and have been successful in pursuing business opportunities in two different markets, mainly the conventional shipping and the unique market for icebound trades.

Moving on to Slide 9, the partnership together with our sponsor has a market share of 80% for vessels with Arc-4 or equivalent Ice Class notations.

With hugely ability to trading in icebound areas as an important advantage due to the current and ongoing construction of LNG production terminals within icebound areas, and in particular, the Northern Sea route where Yamal LNG has recently commenced production. We also expect further projects to be developed in that region.

The initial capital expenditure from Ice Class vessel is somewhat more expensive than conventional carriers. However, the operating costs between our Ice Class type carriers and conventional carriers are very similar. We also expect further projects to be developed in that region.

We view the ability to perform niche operations as an important driver in securing attractive long-term charters going forward. We haven't put in the industry slide in the presentation as an appendix since Tony Lauritzen unfortunately cannot be on this call. We have now reached the end of his presentation and I'm open the floor for questions..

Thank you. [Operator Instructions] Thank you. We will now take our first question. Please go ahead. Your line is open..

This is Randy Givens from Jefferies.

Am I connected here?.

Yes, hi..

So I guess a few quick questions.

So regarding the Lena River, does the current contract go all the way through until the multiyear contract Yamal starts? And what kind of ranges that until then, like is there any odd time between the end of the current contract and the start of the Yamal?.

That's right. The contract that goes up till the moment that the Yamal charter is expected to commence in July of next year given that we understand that the Yamal meet the Lena River as soon as possible. So we don't expect any significant downtime between the two contracts..

Perfect. Okay.

And then with that, what is the rate of the current one?.

Well, I can't disclose the rate. I mean that the rate is lower than the rate that she was trading in, under the Gazprom contract. All I can say is that this picture was done at the very early stages before the LNG spot market took over..

Okay, that's fair.

Now are you seeing any spot rate differential? Or how much is the spread for a steam versus kind of the TFDE vessel?.

Well, because all of our vessels -- all of our vessels are employed, we -- and are trading under long-term contracts, we don't have enough exposure, so any of the information that we have is not enough first hand information.

But we have seen steam turbines earning $100,000 a day in the spot market, and very modern [indiscernible] type vessels earnings double that. That's what we have seen but because we're fully contracted, we don't have this stock exposure..

Sure. Just trying to repeat it there for the market. I guess two more quick questions.

Now with the capital that you have is an additional dropdown, maybe the Clean Ocean or another vessel likely in the next three to six months?.

I think our immediate focus is the refinancing of our notes. That’s our immediate focus. So I can’t really comment on when exactly we’re going to do a dropdown..

And I guess lastly, is there any -- with the whole 250 million kind of still outstanding for refinancing that, but obviously all of your vessels, like you said, fully contracted for many years.

Is there any concerns, fears, questions about the current level of the distribution?.

Well, listen, I mean, I can only give you a general answer here. I mean, we are reviewing how to maximize value going forward. As I said, the refinancing of our notes is a high priority, but we also are concerned that we’re getting a little to no credit for the current distribution. And our current equity yield has kind of hinted our ability to grow.

So we will be looking at how distribution can be used to improve the equity value overtime..

Okay.

What about unit repurchases with that current yield of 14%?.

Well, unit repurchases, when we have, as I said, when we have a bond to refinance, they have done not exactly on the top of our list, right now. As I said, our top priority is to refinance the bonds. And given our contract coverage, we are in a very fortunate position. We are in a very strong position. Our ships have fixed-rate contract.

Our operating expenses are predictable. So we know more or less what we expected to generate in terms of the cash on steady state basis over the next couple of years..

We will now take our next question. Please go ahead. Your line is open..

Hello. This is Fotis Giannakoulis from Morgan Stanley. I would like to ask you about the impact that you might have noticed in the market from the increase in the Henry Hub [ph] price the last few weeks. I understand that you do not have a vessels actively employed in the spot market, but I assume your customers, they transport cargos worldwide.

If you have seen any impact on the spot trade on the one hand, and if you think that this can have any implications for the producers around the world and giving a new momentum to projects in Russia, given very, very strong relationship there?.

Yes. Fotis, as you know, hi, we don’t really have that much spot exposure. So the information that we have on the impact of -- we haven’t seen, you don’t have any first time information on what the short-term insight of being on the shipping side only by the entries of Henry Hub [ph].

Having said that, obviously, an increase in Henry Hub [ph] is being very supportive for future LNG projects, and it's definitely -- it underpins the positive fundamentals of this industry..

And do you think that projects outside of U.S, they might have tried to take advantage of this increase? Do you see more momentum on projects like this, the Arctic project, the expansion in Russia? And also, Qatar has announced that they are going to bring online a large expansion in next few years.

Are there any discussions right now for potentially securing tonnage with long-term contract something that you would be able to participate?.

Definitely, on the Arctic LNG 2, that's the project, which will happen. There are a few transitions for the exports of LNG coming out of Russia. And given how the Yamal project materialized in very, very difficult circumstances, we can feel very, very confident that these projects will materialize irrespective of where Henry Hub [ph] prices are.

I mean these are projects which will happen. And obviously, given the relationship, we would very much hope to be a part of this process to provide shipping for this project. Now as far as Qatar is concerned, obviously, Qatar is the largest producer in the world.

And there are ambitions in the Russians to increase LNG production dramatically, but we haven’t seen anything from our side and any shipping requirements from the Qatari side..

And I have found that your sponsor is involved in the FSRU market with newbilling FSRUs. The last couple of years that has been a market with a very little activity, if any.

Has this changed? Do you see projects reaching FID and contracts being awarded? How is the situation there? What is the supply demand market in the FSRU market?.

Yes. So we have FSRUs for delivery in 2021. I mean there are projects out there which we’re looking at. There is activity. Obviously these projects, they take the long time to materialize. And we’ve seen -- there maybe a compression in the economics as -- of these projects, and also on the period side.

But it's also very specific on the project-by-project basis..

And one last question, given your groups involvement across different sectors and also your focus on the LNG. I guess that one of your peers was questioning the available returns on long-term LNG sipping contracts. So you think that they are not very attractive buying an LNG carrier and putting it into a multiyear contract.

Is this your view? Do you see that there is some return compression or some increase in the cost of capital that makes long-term charters not particularly attractive? Is there any sort of a potentially given strengthening of the spot market trying to have a more exposure in the spot market if it's possible?.

It's true. I mean, on the conventional shipping side, I mean, the deals that we have seen, the economics are not something that we will do. But, so it is true that there are very slim margins in, let's say, in the conventional LNG business. And this is why we're very active in this niche Ice Class trade where the economics are obviously much better.

Spot market is very interesting. I mean, obviously, everyone knows that the spot market is extremely strong. Obviously, we're not actively involved in this market, but I cannot say where we were actively got involved in this market. But all I can say that it is, we believe that, at least in 2019, the spot market will continue.

And maybe in 2020, we will see a reversion to more normalized rates..

[Operator Instructions] Thank you. There are currently no questions in the queue, sir..

Okay. Thank you. So that wraps it up for the third quarter call. Thank you very much. And we will see you next quarter..

That does conclude our conference for today. Thank you for participating. You may all disconnect..