Thank you for standing by and welcome to the Capital Product Partners' Third Quarter 2021 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer of the company. At this time, all participants are in a listen-only mode. . I must advise you this conference is being recorded today, November 5, 2021. The statements in today's conference call are not historical facts, including our expectations regarding cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation as well as our expectation regarding market fundamentals and the employment of our vessels, including redelivery dates and charter rates, may be forward-looking statements, as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our usual expectations to conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statements about the performance of our commom units. I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead.

Thank you, Valerie, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. We are very excited that during the past few months, we have managed to put together two strategic and highly transformative transactions for the partnership as we have agreed to acquire in total six, Latest Generation LNG Carriers with long-term employment in place, exceeding $1.2 billion in value. The first two LNG carriers joined our fleet in early September, and we expect the remaining four to be delivered within the fourth quarter of 2021. Underpinning this transaction and in particular, the acquisition of three additional LNG carriers to those announced earlier this year was the highly successful issuance of EUR150 million or approximately $173 million. Senior unsecured bond on the Athens exchange with a fixed coupon of 2.65% and a 5-year tenure. On the earnings front, we are pleased to see the continued strong financial performance of the partnership during the third quarter of 2021 compared to the same period last year, as the partnership's net income for the third quarter of 2021 was $11.9 million compared with net income of $7.8 million for the third quarter of 2020. Our Board of Directors has declared a cash distribution of $0.10 per common unit for the third quarter, which will be paid on November 12 to common unitholders of record on November 5. The partnership's operating surplus for the third quarter was $25.8 million or $11.3 million after the quarterly allocation to the capital reserve. Separately since the launching of the unit repurchase plan on February 19 and as of September 30, we repurchased 379,660 common units at an average cost of $11.73 per unit. Finally, the partnership's charter…

. And we will now take our first question.

Looking at the container market and with the order book, with a fair amount of deliveries in the 2023, 2024 timeframe, you have several vessels up for recharter at that point. Do you worry about the order book being a little heavy during that recharter period? And does it change your view of the container market?

I think we do -- the container book has -- the order book for containers has more than doubled since 2020. And we have, right now, a very nice picture almost a perfect storm when it comes to demand and supply for containers. But one wonders as demand normalizes, supply also normalizes in terms of the logistical chain disruptions in -- over the medium to long run. And as this coincides with increased deliveries from the shipyards, how this will affect the market. I think we are not particularly concerned from the short to medium term, but the order book has increased quite a bit. Having said that, if one compares this market to and the order book of what we had back in 2008, 2009, back then, we saw the market crash, but the order book was more like 60% of the fleet in the water. So I think it will very much depends on demand. But all in all, I think the acquisition of the LNG carriers partly addresses this issue to a very large extent. And it does this because it diversifies our revenue stream away from containers with the addition of very repeatable counterparties. In addition to those we have on the container side, it increases the revenue backlog. And importantly, that revenue backlog continues well into 2024, 2025, when many of our charters expire. Again, having said that, our charters, as you know, are -- the charters that we have currently locked in are not at current market levels. So when you look at where we have fixed our 8,000 TEU ships and where we're fixed or 5,000 TEU ships, they're substantially below current levels and closer to mid-cycle or even below mid-cycle rates. So even unless we have a very bad market, one can safely assume that maybe we won't be able to recharter at such great rates as one sees today. But potentially, we can continue to generate the same revenues we are generating today, which, together with the acquisition of the LNG carriers, I think, bring on substantial free cash flow.

Fair enough. And looking at the drop-downs, you sort of have -- I mean, you're digesting the six LNG vessel acquisitions, but looking at the drop-downs in the future, you have three container vessels with long-term contracts with a strong counterparty and then you have the three LNG vessels that are, well, essentially with no contracts. How do you look at the drop-downs in terms of prioritizing? Would you be more inclined to take the existing contract? Or would you look at something and saying, okay, we'll just see how it shakes up?

I think we will continue to look at acquisitions where we have cash flow visibility. So the LNG vessels where we have a right of first user first offer. They don't have charters in place yet. So I think there will be secondary in our agenda. And the containers with a nice 10-year charters, obviously, they are easier to fit with their business model and easier to price in a way. But if the LNG carriers also obtain nice charters with good tender, I think we will definitely look at those LNG is a segment where we want to grow further.

This is Ben Nolan. So I've got a couple. The first is, I'm just hoping that maybe you can walk me through the math of post options, which congratulations on being able to do that without equity, it's pretty impressive, especially in the terms of the bond are fantastic. But what's your current debt amortization? Or maybe another way to think about it is, how much cash flow -- and appreciating there's a few moving parts, but how much cash flow is sort of left over after your current commitments to repay debt and interest?

So we still have to acquire an additional four LNG carriers by the end of the year and deliver the Adonis to its buyer. This vessel was expected to be delivered back in the summer. But so far, the innovation of the charter was unsuccessful. So you should expect this vessel to be really delivered to the buyer towards at the end of the fourth quarter. So as soon as this happens, then we can get the fourth vessel in. So we can proceed fairly quickly. It's only a question of documentation for the innovation of the debt for the acquisition of the three optional ships. In fact, if this happens quickly, the equity component, as we have suggested, will be less than $20 million, closer to $15 million. So that's easy. But then from the sale of the Adonis, our proceeds will be approximately $48 million to $47 million. But then we will need for the Aristidis I approximately $70 million or so. So that -- I mean, if you do this math, plus the cash flow generation that we have from operations, you'll see that our cash balance drops closer to $20 million or so or just north of that towards the end of the quarter, but then it builds up very quickly again because of the cash generation of the combined fleet. So I think on Page 10 of the of the presentation, we have -- we attempted a pro forma estimation of what this would look like. If you look at the annual operating surplus, which could be a proxy for free cash flow, we end up with a number of $97.5 million. Of course, you have to deduct dividends and it's not going to be exactly the same fleet. But if you do the adjustment, you'll see that the cash flow generation is not very far from there. So there will be plenty of cash generation going forward. But that's what I meant also that in our attempt to minimize or actually have no need for an equity placement. We will grow on our liquidity in the short term, but we will build it up again very quickly.

Right. Well, So what is the pro forma annual debt repayment?

Okay. That's about $100 million -- about $101 million, which is...

I'm sorry, could you say it again?

So the annual debt amortization for 2022, for example, including the sellers credit that we have to repay in 2022 is $100.7 million. So that's about 7.5% of debt outstanding -- the pro forma debt outstanding. So we will be generating significant free cash flow, but also repaying debt quite aggressively as well.

Okay. And then sort of following on to that. How -- pro forma subsequent to the finalization of the couple of deliveries and so forth, how do you view your ability to continue to borrow? How close to the ceiling? Do you think you are without sort of taking down some of that leverage over the course of next year?

Okay. I think it's a fair question. But if you look at the average leverage across the vessels we have -- that we are acquiring now is just north of 70%. It was similar also with the first three vessels. And I think this is also quite reasonable given the age and useful life of these assets. Now you're right that our indebtedness in absolute numbers increases quite a bit from, let's say, $651 million at the end of the quarter, pro forma for the acquisition of the remaining ships, it will go to $1.3 billion, also adjusted for the sale of the Adonis. But if you look at the gross leverage on charter-free values, it will remain at very reasonable levels. It's actually below 50%. At the same time, as we discussed, we'll be repaying the debt incurred for the LNG carriers relatively faster over the next 2, 3 years. This is because we're taking advantage of the front-loaded structure of the BP charters. So that will allow us to reduce the debt outstanding quickly. And the final point that I wanted to make here in terms of, I guess, which is close to your question, how close are we also to our financial covenants. I mean it's not just that we have currently a 50% leverage, which is 25% below any metrics. But importantly, the LNG carriers have less volatility in terms of their values. Their beta is smaller, if you want, which then will help decrease the beta of the overall fleet.

So in other words, even subsequent to the acquisition, there still might be some room to do a little bit more of that equity?

Yes. For sure, but I don't think the intention is to take on more leverage in the short-term until we repay some of the debt and we increase our liquidity position. So it's not that we intend to go out in January and acquire more ships. As we build up our liquidity, especially during the first half, and we repaid down debt, potentially, we can look again at the new acquisitions towards the third, fourth quarter of 2022, when also we have the first deliveries from the 13,000 TEU containers.

Okay. Perfect. That's it. And congratulations on really pretty transformative a few months here.

Thank you, Ben. Appreciate it.

We will now take our next question.

Jerry, it's Randy Givens from Jefferies. First question on your fleet, can you discuss kind of just bigger picture, the reason for the exercise on the three additional LNG vessels as opposed to maybe further growth on container ships? And then also any appetite to sell that Akadimos that comes off a charterr next year and/or the Cape Agamemnon?

I think that let me start with the sales. I think that this is going to be driven by opportunity. If we see a crazy number, as we saw back in May, we will definitely look at it, but it's not something that we are seeking to do proactively. As far as the older ships are concerned, Agamemnon, Archimidis, even the older Panamax vessels, by the way, acquired at the beginning of the year, if we see a good opportunity because of the overall momentum in the container market, despite their long-term charter coverage, we will again consider a sale because, as I said in my prepared remarks, I do not think that the impact of the environmental regulations with regard to greenhouse emissions has been fully reflected in the values of older second-hand ships. I think that's across the segment, but containers, probably more than others firstly, because the market is too hot for people to care right now. And secondly, because of their very high consumption profile due to their trades. So if we see opportunities in the secondhand market for the older ships, we'll be inclined to look at them. I'm not saying this is something that we will necessarily do, but we are open to considering such transactions. Now why we haven't invested in the container market, I think overall, one needs to be more cautious. Asset prices, as you know, have increased dramatically. So when you look at the deal, it has to make sense after taking into account a potential weaker market ahead and the environmental regulation that I was talking about earlier. So residual value is a big risk. As rates tend to be at sky-high levels, then you add on more counterparty risk as well. And then if you look at the container order book, it has effectively doubled. Some people will say it's more than that if you include options. But it's definitely a market where it looks great in the short-to-medium term. But in the long-term, one has to be cautious as to how one navigates, especially residual value risk. On the LNG side, I think it was very different. I mean, the values that we negotiated are ground level values. It's historically very close to the lowest entry point. They are good charters. So an AU minimize residual value risk. Actually, these assets have a much longer useful life. Secondly, you have good charters to very good counterparties. And effectively, they also do something which is very important to us. They also help modernize our fleet. I mean, we dropped almost 5 years of average age within effectively 6 months. And we are also reducing our environmental footprint. And this is a market where we believe it has very long-term strong fundamental prospects. Container market is great. And as I said, short-to-medium run, it looks good, but there is a temporary element to it, especially with regard to the supply disruption side.

Got it. Okay. And then second question on capital allocation. Do you view unit repurchases as more attractive than increasing the distribution at these levels? Or does kind of the trade and liquidity come at a premium and the focus will be on distribution rates?

Yes. That's a great question. We have continued with unit buybacks into the third quarter, we have purchased approximately 48,500 units, obviously, at a slower pace than before. This is for the same reason that I mentioned before. I mean, we were looking to complete the additional three LNG carriers, and we were cautious with our liquidity position. And for this reason, we have also to pause the unit buyback plan for the moment. But as we build up again quickly our cash position, we intend to resume the unit buybacks. As we have discussed over the last few quarters, we continue to want to return capital to unitholders through both distributions and unit buybacks. And unit buybacks become increasingly attractive as long as the equity valuation and dislocation remains wide. So I think the answer is, yes. The distribution increase, if it comes, which is something that we -- that the Board wants to review in the coming board meeting is something more longer term. But I think the unit buybacks is a good and opportunistic way to return capital to unitholders and at the same time, deploy money accretively.

And we will take our next question.

Good morning, Jerry. It's J. Mintzmyer from Value Investor's Edge. Congratulations, first of all, on that fantastic unsecured bond. That was very, very interesting. On a big picture, looking strategically at that bond. I mean, 2.65% unsecured. It was way oversubscribed. But in conversation with bankers and looking at the bigger picture, is that something that you think is repeatable because it would be very interesting if you do a similar bond next year and take some of those container ships. Is that something you think you could do? Or do you think we're going to have to shift back to a secured debt mix?

Look, I think if you look at the demand, it looks as if this is a very lively market, and there is more demand than supply. So it looks like a market which will remain active. But it's always, I guess, subject to market conditions, supply of other deals and so on and so forth. Investors here in Greece, I think they appreciated the opportunity to be able to invest in this bond, whereby the proceeds went to the acquisition of the three LNG carriers. It was very clearly defined. I think the story was also a good one because LNG, it's still going to play a very important role in the energy transition. And if you looked at the cash flows of the LNG carriers, the charters that is -- and together with a guarantee of CPLP, it made the bond a very high-quality proposition for bondholders. Now what the market holds. I mean, and overall, capital markets goal for the next few months, I don't know. But it seems that it is a market that is here to stay. As you know, we are not the first this year. There has been one before us, which was also very successful.

Yes. It's very, very attractive for both companies to do that. You mentioned that the delivery of the Adnois was delayed for an issue with the charter innovation. Is there any cash penalty associated with that? Or are you still going to receive the full $97.5 million when you sell that ship?

No, There is no cash penalty. The reason that the vessel is being delayed was that the earlier delivery was subject to the innovation of the charter because the buyer is a liner company, the either liner -- the charter, the other liner company, it does not necessarily want to consent to renovation of the charter. When and if that happens, then the vessel will be delivered or if it doesn't, then the vessel will be delivered at the end of the charter, plus a buffer that it is provided by the contract. But for us, the sale price remains the same.

Makes sense. So the sales price remains the same. Do you get to capture the additional cash flow from the additional few months of that charter? Or is that placed in some sort of transfer account to the buyer?

We do. We do. And it has been reflected in our quarterly earnings, and it will be reflected in our fourth quarter earnings as well.

Thanks, Jerry. Definitely a luxury problem than definitely something worth looking at. I wanted to turn to your distribution. You made a very interesting comment in the prepared remarks saying that you're going to look at this quarterly. You think it's due for an increase. You mentioned cash available for distribution in your slide presentation. It looks like if I'm doing my math correct, that it's about $5 per unit per year, about $1.25 per quarter. Now of course, that would be 100% payout. And I know you don't want to do that. But when you talk about an increase to the distribution, right now, it's $0.10, which is less than 10% payout, tiny payout going forward. When you talk about an increase, do you mean like a slight increase from $0.10 to $0.15 or $10 to $20? Or could we see a more significant payout? Like if you did 40% or 50% payout would be at $0.50 a quarter. How can we think about the potential there for that increase?

I think your math sounds about right. That's, of course, pro forma numbers. Doesn't mean that they are -- if you do your numbers going forward, you'll see that -- and you make actual projections, you will see probably that, as I said in my prepared remarks, that the numbers might be slightly lower, but still a very material increase to our -- what we expect a very material increase compared to our existing free cash flow. With regard to how much we will increase the distribution. If we do so, I think I will leave this to the Board. But to your point, the new free cash flow per unit that the combined fleet allows is definitely substantial. As I said also in my prepared remarks, we have to balance this together with unit repurchases because this continues to be a very nice way of returning capital and deploying our equity in an accretive way. And finally, also continuing to grow the partnership. I think it has been a very good choice to have the liquidity that we have today. We have managed to transform the partnership. We have managed to give -- with the new additions and the lowering of the average fleet aids, effectively, we have replenished the fleet substantially. And we have increased the terminal value of the company. So I think growth has been definitely the right choice. And together, we're returning some capital unitholders through both distributions and unit buybacks. We expect to follow the same path in the future.

Yes. It's certainly been transformative, Jerry. There's just -- I mean, there's something really crazy and we are going on with your unit price. I mean, right now, it's a $13.50. If you look at your cash available distribution, according to your own slide, that's like a 35% yield implied. If you look at our cash to the current market price. I know adjusted NAV is debatable with a fixed asset base, but I have your adjusted NAV in the 40s and your stocks at $13.50. So anything you can do to unlock that value, whether it's a repurchase or increasing that distribution will be very welcome. I mean, even at a $0.50 per quarter payout, $0.50 would be a 5 times increase. And even that would only be a 40% or 50% payout. So I urge you to consider that, and I look forward to next quarter.

I hear you, and I think also by -- companies are not only valued against dividends and distributions. So I think that also by running the -- by, as you say, looking at the underlying value of the company and for you as analysts to present it, it's going to be equally important. If we haven't done the transaction that we have done, the underlying value of the company would have been less compared to just having sustained our distribution. So I think it's also very much on you to showcase what we have done here. I think it's quite clear. It's a very simple company. Good assets, long-term charters, very easy capital structure. So we hope that we will also be able to unlock some of the value by showcasing what we have done, of course, with your help.

There are no further questions at this time.

I would now like to hand the call back to Jerry Kalogiratos for closing remarks. Thank you, Valerie, and thank you all for joining us today.

Thank you, ladies and gentlemen, that does conclude our conference for today. Thank you for participating, and you may now disconnect.