GasLog Partners (GLOP, Financial) owns, acquires and operates liquified natural gas (LNG) carriers under long-term charters. It is an excellent long-term portfolio limited partnership unit.
It is important to have a mix of dividend and growth stocks in a portfolio. Among LP units, I am bullish on GasLog Partners and Antero Midstream Partners (AM, Financial). Both stocks are worth considering not just for current yields, but for sustained growth in cash distribution yields.
The company's business model is to own and acquire LNG carriers that are on long-term charters from GasLog Ltd. (GLOG, Financial). The partnership unit operates a business model that ensures steady revenue and cash flow through long-term fixed-rate charter agreements.
Currently, GasLog Partners has eight LNG carriers on contract with Shell. While only a few charter contracts expire in 2018-2019, Shell has the option to extend the contracts. Overall, with industry dynamics being robust, I expect sustained cash flow from these LNG carriers. This implies that the current cash distribution of $1.912 per unit will sustain in the coming years.
However, for the LP unit price to trend higher or for cash distribution to increase, a discussion on the growth visibility is important. GasLog Partners has a dropdown agreement with GasLog  Ltd., where the former has the right to acquire LNG carriers that are contracted for the long term.
GasLog has two LNG carrier deliveries in 2018 and three deliveries in 2019. These new LNG carriers can be potential dropdown candidates. Hull 2801 and Hull 2212 have recently been contracted for seven-year charters with Total (TOT, Financial) and Centrica. They and several others are clear dropdown candidates.
Therefore, as these LNG carriers are delivered to GasLog and subsequently purchased by GasLog Partners, the revenue visibility is likely to increase along with potential for an increase in cash distribution payouts.
With potential dropdowns in the coming quarters, an important point to analyze is the partnership's financial health. As of the third quarter, GasLog Partners had $109.7 million in cash and $30 million available under its revolving credit facility. With $140 million in available liquidity coupled with a debt to capitalization of 51%, the company’s financial flexibility remains high.
GasLog Partners does have current leverage (net debt to EBITDA) of 4.0, but that is not a concern considering the company’s EBITDA interest coverage was at 6.0 as of the third quarter. With smooth debt servicing expected on fixed-fee contracts, the current level of leverage is not a concern.
Therefore, from a financial perspective, GasLog Partners is well positioned for dropdowns from GasLog in the coming years, which will ensure the company’s cash distribution yield will remain robust. Since the Initial Public Offering in the second quarter of 2014, the LP unit has seen cash distribution increase at a CAGR of 14%. I expect healthy growth to sustain in the next two to three years, taking the LP unit price higher and sustaining cash distribution.
In conclusion, the outlook for the LNG carrier industry is robust with strong demand from China and India. This will ensure that long-term contracts come relatively easily for GasLog. In turn, this will ensure that GasLog Partners continues to deliver sustained growth in cash distribution. GasLog Partners' unit price has surged by 40% year to date, but I see current levels as attractive for medium to long-term exposure.
Disclosure: No positions in the stocks discussed.
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