GasLog Partners (GLOP, Financial)Â trended higher in 2015 along with a surge in the stock of parent company GasLog (GLOG, Financial). While the MLP is higher by 15% for year-to-date 2016, there is more upside for the unit along with continuation of robust distribution.
The first reason to be bullish on GasLog Partners is the company’s strong balance sheet position. In challenging times for the broad industry, the first factor to analyze is the balance sheet. GasLog Partners is robust on that front with total debt to capitalization of 55% as of December 2015.
While the company’s leverage for the same period stands at 4.4, that is not a concern considering the point that the company’s annualized EBITDA interest coverage is 6.3 as of December 2015. Clearly, the unit has no debt servicing concerns.
Currently GasLog Partners has eight LNG vessels that are operating under long-term charter contracts with BG Group (BG., Financial). With none of the contracts expiring before 2018, the company’s revenue visibility is firm at least for the next 24 months.
Even beyond that, the revenue backlog should be robust with strong demand for LNG vessels coming from U.S. LNG exports. With China being the major demand center, long distance trade will prove beneficial for LNG vessel owners. Therefore, with clear revenue visibility, debt servicing should not be a concern; even if leverage increases, the company’s debt servicing is likely to remain smooth.
The reason for believing that leverage will increase is the point that GasLog Partners has an omnibus agreement with GasLog that allows for dropdown of vessels from GasLog. Currently GasLog has five vessels in operation that are potential dropdown candidates. Further, GasLog has delivery of seven LNG vessels in through 2019 and these vessels will also be eligible for dropdown.
While all vessels will not come under GasLog Partners, there will be continued dropdown in the next three to four years; this will ensure that the cash flow increases and so will the distribution payout. Therefore, even for investors considering exposure to the unit for the next three to five years, there are reasons to be bullish from unit upside and distribution upside perspective.
From a distribution perspective, GasLog Partners reported distributable cash flow of $22.5 million with the distribution for fourth-quarter 2015 being $15.7 million. With distribution coverage of 1.43 and distribution coverage of 1.24 since IPO, GasLog Partners has sufficient flexibility to continue with robust distribution of $1.91 per unit that currently translates into distribution yield of 11.18%.
Investors looking for units that provide high distribution yield coupled with steadily increasing distribution yields can consider GasLog Partners with an investment horizon of three to five years. While the company’s leverage will remain high during this period, the EBITDA interest coverage will remain comfortable. The parent company GasLog has few new LNG vessels scheduled for delivery in 2016, and one or two dropdowns seem likely during the year. This will provide investors with incremental distribution and potential unit upside.
Disclosure: No positions in the stock.
