UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Form 6-K

 

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2018

 

Commission File Number 001-36588

 

 

 

Höegh LNG Partners LP

(Translation of registrant’s name into English)

 

 

 

Wessex House, 5 th Floor

45 Reid Street

Hamilton, HM 12 Bermuda

 

(Address of principal executive office)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F   x             Form 40-F   ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).

 

Yes   ¨             No    x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).

 

Yes   ¨             No    x

 

 

 

 

 

 

HÖEGH LNG PARTNERS LP

 

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

 

Table of Contents

 

  Page
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3
   
FORWARD LOOKING STATEMENTS 28
   
INDEX TO FINANCIAL STATEMENTS F-1
   
Unaudited Condensed Interim Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017 F-2
   
Unaudited Condensed Interim Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 F-3
   
Unaudited Condensed Interim Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 F-4
   
Unaudited Condensed Interim Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2018 and the Year Ended December 31, 2017 F-6
   
Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2018 and 2017 F-8
   
Notes to Unaudited Condensed Interim Consolidated Financial Statements F-10
   
EXHIBITS
   
SIGNATURE

 

 2 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following is a discussion of our financial condition and results of operations for the three months ended June 30, 2018 and 2017. References in this report to “Höegh LNG Partners,” “we,” “our,” “us” and “the Partnership” refer to Höegh LNG Partners LP or any one or more of its subsidiaries, or to all such entities unless the context otherwise indicates. References in this report to “our operating company” refer to Höegh LNG Partners Operating LLC, a wholly owned subsidiary of the Partnership. References in this report to “Höegh Lampung” refer to Hoegh LNG Lampung Pte Ltd., a wholly owned subsidiary of our operating company. References in this report to “Höegh FSRU III” refer to Höegh LNG FSRU III Ltd., a wholly owned subsidiary of our operating company. References in this report to “Höegh Cyprus” refer to Hoegh LNG Cyprus Limited including its wholly owned branch, Hoegh LNG Cyprus Limited Egypt Branch (“Egypt Branch”), a wholly owned subsidiary of Höegh FSRU III and the owner of the Höegh Gallant. References in this report to “PT Höegh” refer to PT Hoegh LNG Lampung, the owner of the PGN FSRU Lampung. References in this report to “Höegh Colombia Holding” refer to Höegh LNG Colombia Holding Ltd., a wholly owned subsidiary of our operating company. References in this report to “Höegh FSRU IV” refers to Höegh LNG FSRU IV Ltd., a wholly owned subsidiary of Höegh Colombia Holding and the owner of the Höegh Grace. References in this report to “Höegh Colombia” refer to Höegh LNG Colombia S.A.S., a wholly owned subsidiary of Höegh Colombia Holding. References in this report to our or the “joint ventures” refer to SRV Joint Gas Ltd. and/or SRV Joint Gas Two Ltd., the joint ventures that own two of the vessels in our fleet, the Neptune and the GDF Suez Cape Ann, respectively. References in this report to “GDF Suez” refer to GDF Suez LNG Supply S.A., a subsidiary of Total S.A.. References in this Report to “PGN LNG” refer to PT PGN LNG Indonesia, a subsidiary of PT Perusahaan Gas Negara (Persero) Tbk (“PGN”). References in this report to “SPEC” refer to Sociedad Portuaria El Cayao S.A. E.S.P. References in this report to “Höegh LNG” refer, depending on the context, to Höegh LNG Holdings Ltd. and to any one or more of its direct and indirect subsidiaries, other than us. References in this Report to “EgyptCo” refer to Höegh LNG Egypt LLC, a wholly owned subsidiary of Höegh LNG.

 

You should read this section in conjunction with the unaudited condensed interim consolidated financial statements as of June 30, 2018 and for the periods ended June 30, 2018 and 2017 and the related notes thereto included elsewhere in this report, as well as our historical consolidated financial statements and related notes included in our report on Form 20-F filed with the Securities and Exchange Commission (“SEC”) on April 6, 2018 (our “2017 Form 20-F”). This discussion includes forward-looking statements which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those currently anticipated and expressed or implied by such forward-looking statements. See also the discussion in the section entitled “Forward- Looking Statements” below.

 

Highlights

 

  · Reported total time charter revenues of $35.5 million for the second quarter of 2018 compared to $35.0 million of time charter revenues for the second quarter of 2017

 

  · Generated operating income of $28.9 million, net income of $19.9 million and partners’ interest in net income of $16.9 million for the second quarter of 2018 compared to operating income of $23.1 million, net income of $12.2 million and partners' interest in net income of $9.4 million for the second quarter of 2017; operating income, net income and partners’ interest in net income were impacted by unrealized gains and losses on derivative instruments mainly on the Partnership's share of equity in earnings (losses) of joint ventures in the second quarter of 2018 and 2017

 

  · On August 14, 2018, paid a $0.44 per unit distribution on common and subordinated units with respect to the second quarter of 2018, equivalent to $1.76 per unit on an annualized basis

 

  · On August 15, 2018, paid a cash distribution of $0.546875 per 8.75% Series A cumulative redeemable preferred unit (the "Series A preferred units"), for the period commencing on May 15, 2018 to August 14, 2018

 

 3 

 

 

Our results of operations

 

   Three months ended   Six months ended 
   June 30,   June 30, 
(in thousands of U.S. dollars, except per unit amounts)  2018   2017   2018   2017 
Statement of Income Data:                    
Time charter revenues  $35,510    35,024    70,395   $70,101 
Other revenue   1,100        1,100     
Total revenues   36,610    35,024    71,495    70,101 
Vessel operating expenses   (5,462)   (5,628)   (11,215)   (11,805)
Construction contract expenses       (151)       (151)
Administrative expenses   (2,101)   (2,465)   (4,888)   (5,222)
Depreciation and amortization   (5,268)   (5,263)   (10,536)   (10,526)
Total operating expenses   (12,831)   (13,507)   (26,639)   (27,704)
Equity in earnings (losses) of joint ventures   5,111    1,551    14,481    6,360 
Operating income (loss)   28,890    23,068    59,337    48,757 
Interest income   174    113    361    243 
Interest expense   (6,918)   (7,752)   (13,782)   (15,488)
Gain (loss) on derivative instruments   544    247    1,175    910 
Other items, net   (880)   (1,422)   (1,486)   (2,224)
Income (loss) before tax   21,810    14,254    45,605    32,198 
Income tax expense   (1,866)   (2,042)   (3,975)   (3,797)
Net income (loss)  $19,944    12,212    41,630   $28,401 
Non-controlling interest in income       2,812        5,556 
Preferred unitholders’ interest in net income   3,003        5,663     
Limited partners’ interest in net income (loss)  $16,941    9,400    35,967   $22,845 
                     
Earnings per unit                    
Common unit public (basic and diluted)  $0.50   $0.28   $1.07   $0.68 
Common unit Höegh LNG (basic and diluted)  $0.53   $0.30   $1.11   $0.71 
Subordinated unit (basic and diluted)  $0.53   $0.30   $1.11   $0.71 
Cash Flow Data:                    
Net cash provided by (used in) operating activities  $20,647   $18,256   $39,972   $38,599 
Net cash provided by (used in) investing activities   943    446    1,863    5,076 
Net cash provided by (used in) financing activities  $(30,010)  $(19,017)  $(44,720)  $(43,353)
Other Financial Data:                    
Segment EBITDA(1)  $36,914   $29,598   $71,782   $59,052 

 

 

 

(1)Segment EBITDA is a non-GAAP financial measure. Please read “Non-GAAP Financial Measure” for a definition of Segment EBITDA and a reconciliation of Segment EBITDA to net income, the comparable U.S. GAAP financial measure

 

 4 

 

 

Six Months ended June 30, 2018 Compared with the Six Months ended June 30, 2017

 

Revenues. The following table sets forth details of our revenues for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Time charter revenues  $70,395   $70,101   $294 
Other revenue   1,100        1,100 
Total revenues  $71,495   $70,101   $1,394 

 

Time charter revenues for the six months ended June 30, 2018 were $70.4 million, an increase of $0.3 million from $70.1 million for the six months ended June 30, 2017. Time charter revenues increased due to higher time charter revenue for the PGN FSRU Lampung for the six months ended June 30, 2018 which was partially offset by reduced by lower time charter revenue for the Höegh Grace. The increase in revenues for the PGN FSRU Lampung was mainly due to recognition in the first quarter of 2018 of previously constrained variable consideration for reimbursement of prior period costs and the reduction in revenues for the Höegh Grace related to certain lower reimbursable costs during the period. Time charter revenues for the Höegh Gallant were at the same level for the six months ended June 30, 2018 and 2017. The Höegh Gallant had 10 days of scheduled maintenance for the first six months ended June 30, 2018. During the six months ended June 30, 2017, the Höegh Gallant incurred 8 days of scheduled maintenance and several days of reduced hire.

 

Other revenue consists of insurance proceeds received, subsequent to June 30, 2018, for claims related to repairs under a warranty provision related to the Mooring (as defined below) which were completed in 2017. Refer to "Construction Contract Expenses" below.

 

Time charter revenues for the PGN FSRU Lampung consist of the lease element of the time charter, accounted for as a direct financing lease using the effective interest rate method, as well as variable consideration for providing time charter services, reimbursement for vessel operating expenses, performance warranties, if any, and withholding taxes borne by the charterer. Time charter revenues for the Höegh Gallant consist of the fixed daily hire rate which covers the operating lease and the provision of time charter services including the costs incurred to operate the vessel and performance warranties, if any. Time charter revenues for the Höegh Grace consist of a lease element accounted for as an operating lease, as well as variable consideration for providing time charter services, reimbursement of vessel operating expenses, performance warranties, if any, and certain taxes incurred. Effective January 1, 2018, we adopted the new accounting standard, Revenue from Contracts with Customers, which did not change the timing or amount of revenue recognized but requires additional qualitative and quantitative disclosures. Refer to notes 2.c. and 5 in the unaudited condensed interim consolidated financial statements.

 

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Vessel operating expenses  $(11,215)  $(11,805)  $590 

 

Vessel operating expenses for the six months ended June 30, 2018 were $11.2 million, a decrease of $0.6 million from the six months ended June 30, 2017. The decrease reflects reduced vessel operating expenses for each of the PGN FSRU Lampung, the Höegh Gallant and the Höegh Grace due to the increased focus on matching the timing of purchases to the timing of usage.

 

Construction Contract Expenses. The following table sets forth details of our construction contract expenses for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Construction contract expenses  $   $(151)  $151 

 

 5 

 

 

Construction contract expenses relate to an offshore installation that is used to moor the PGN FSRU Lampung to offload natural gas into an offshore pipe that transports the gas to a land terminal for the charterer, PGN LNG (the “Mooring”). The Mooring was constructed on behalf of, delivered and sold to, PGN LNG in 2014. As of December 31, 2014 and June 30, 2016, the Partnership recorded provisions for a warranty allowance of $2.0 million and $0.3 million, respectively, for technical issues that required the replacement of equipment parts for the Mooring. The warranty repair work, including the installation of the replacement parts, was completed during second quarter of 2017, and the final cost exceeded the remaining warranty allowance. As a result, an additional expense of $0.2 million was recorded as of June 30, 2017. Part of the costs incurred for the remaining warranty replacements, net of deductible amounts, were anticipated to be recoverable under insurance coverage. Subsequent to June 30, 2018, $1.1 million of the insurance claim was received which was recognized as Other revenue for the six months ended June 30, 2018. We were indemnified by Höegh LNG for all warranty provisions at the time the costs were incurred, subject to repayment to the extent recovered by insurance. The $1.1 million is expected to be refunded to Höegh LNG during the third quarter of 2018.

 

Administrative Expenses. The following table sets forth details of our administrative expenses for the six months ended June 30, 2018 and 2017: 

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Administrative expenses  $(4,888)  $(5,222)  $334 

 

Administrative expenses for the six months ended June 30, 2018 were $4.9 million, a decrease of $0.3 million from $5.2 million for the six months ended June 30, 2017. The main reason for the decrease was $0.4 million in reduced administrative expenses related to the entities operating the PGN FSRU Lampung, the Höegh Gallant and the Höegh Grace which were partly offset by higher partnership expenses of $ 0.1 million.

 

Depreciation and Amortization. The following table sets forth details of our depreciation and amortization for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Depreciation and amortization  $(10,536)  $(10,526)  $(10)

 

Depreciation and amortization was $10.5 million for each of the six months ended June 30, 2018 and 2017.

 

Total Operating Expenses. The following table sets forth details of our total operating expenses for the six months ended June 30, 2018 and 2017:  

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Total operating expenses  $(26,639)  $(27,704)  $1,065 

 

Total operating expenses for the six months ended June 30, 2018 were $26.6 million, a decrease of $1.1 million from $27.7 million for the six months ended June 30, 2017. The decrease is mainly due to reduced vessel operating expenses and lower administrative expenses for the PGN FSRU Lampung, the Höegh Gallant and the Höegh Grace in the six months ended June 30, 2018 compared to the corresponding period of 2017.

 

Equity in Earnings (Losses) of Joint ventures. The following table sets forth details of our equity in earnings (losses) of joint ventures for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Equity in earnings (losses) of joint ventures  $14,481   $6,360   $8,121 

 

Equity in earnings of joint ventures for the six months ended June 30, 2018 was $14.5 million, an increase of $8.1 million from $6.4 million for the six months ended June 30, 2017. Unrealized gains on derivative instruments in our joint ventures significantly impacted the equity in earnings (losses) of joint ventures for the six months ended June 30, 2018 and 2017. 

 

 6 

 

 

Excluding the unrealized gain on derivative instruments for the six months ended June 30, 2018 and 2017, the equity in earnings of joint ventures would have been $5.0 million for the six months ended June 30, 2018, an increase of $0.4 million compared to $4.6 million for the six months ended June 30, 2017.

 

Our share of our joint ventures’ operating income was $11.6 million for both the six months ended June 30, 2018 and 2017. Our share of other income (expense), net, principally consisting of interest expense, was $6.6 million for the six months ended June 30, 2018, a decrease of $0.4 million from $7.0 million for the six months ended June 30, 2017, principally due to the repayment of outstanding loan balances for bank financing.

 

Our share of unrealized gain on derivative instruments was $9.5 million for the six months ended June 30, 2018, an increase of $7.8 million from unrealized gain of $1.7 million for the six months ended June 30, 2017.

 

There was no accrued income tax expense for the six months ended June 30, 2018 and 2017. Our joint ventures did not pay any dividends for the six months ended June 30, 2018 and 2017.

 

Operating Income (Loss). The following table sets forth details of our operating income (loss) for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Operating income (loss)  $59,337   $48,757   $10,580 

 

Operating income for the six months ended June 30, 2018 was $59.3 million, an increase of $10.5 million from operating income of $48.8 million for the six months ended June 30, 2018. Excluding the impact of the unrealized gains (losses) on derivatives for the six months ended June 30, 2018 and 2017 impacting the equity in earnings (losses) of joint ventures, operating income for the six months ended June 30, 2018 would have been $49.9 million, an increase of $2.9 million from $47.0 million for the six months ended June 30, 2017. The increase for the six months ended June 30, 2018 is primarily due to the one-off receipt of insurance proceeds related to prior periods expenses and reduced vessel operating expenses and administrative expenses for our vessel operating entities.

 

Interest Income. The following table sets forth details of our interest income for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Interest income  $361   $243   $118 

 

Interest income for the six months ended June 30, 2018 was $0.4 million, an increase of $0.2 million from $0.2 million for the six months ended June 30, 2017. Interest income is mainly related to interest accrued on the advances to our joint ventures and on cash balances for the six months ended June 30, 2018 and 2017, respectively. The interest rate under the shareholder loans is a fixed rate of 8.0% per year.

 

Interest Expense. The following table sets forth details of our interest expense for the six months ended June 30, 2018 and 2017: 

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Interest expense  $(13,382)  $(14,561)  $1,179 
Commitment fees   (37)   (504)   467 
Amortization of debt issuance cost and fair value of debt assumed   (363)   (423)   60 
Total interest expense  $(13,782)  $(15,488)  $1,706 

 

Total interest expense for the six months ended June 30, 2018 was $13.8 million, a decrease of $1.7 million from $15.5 million for the six months ended June 30, 2017. Interest expense consists of the interest incurred, commitment fees and amortization of debt issuance cost and fair value of debt assumed for the period.

 

The interest incurred of $13.4 million for the six months ended June 30, 2018, decreased by $1.2 million compared to $14.6 million for the six months ended June 30, 2017, principally due to repayment of outstanding loan balances for the loan facilities related to the PGN FSRU Lampung (the “Lampung facility”), the Höegh Gallant (the “Gallant facility”) and the Höegh Grace (the “Grace facility”) and the repayment of the seller’s credit note in October 2017. The positive impact on interest expense of the repayment of the seller’s credit note was partially offset by the increased outstanding balance on the revolving credit facility.

  

 7 

 

 

Commitment fees were $0.0 million for the six months ended June 30, 2018, a decrease of $0.5 million for the six months ended June 30, 2017. The commitment fees relate to the undrawn balance of the $85 million revolving credit facility. On January 29, 2018, the revolving credit facility was amended to eliminate the requirement to pay a commitment fee on the undrawn balance of the facility as of that date.

 

Amortization of debt issuance cost and fair value of debt assumed was $0.4 million for each of the six months ended June 30, 2018 and 2017.

 

Gain (Loss) on Derivative Instruments. The following table sets forth details of our gain (loss) on derivative instruments for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Gain (loss) on derivative instruments  $1,175   $910   $265 

 

Gain on derivative instruments for the six months ended June 30, 2018 was $1.2 million, an increase of $0.3 million from $0.9 million for the six months ended June 30, 2017. Gain on derivative instruments for the six months ended June 30, 2018 and 2017 related to the interest rate swaps for the Lampung facility, the Gallant facility and the Grace facility. The increase is mainly due to a loss on the ineffective portion of the cash flow hedges for the six months ended June 30, 2017.

 

Other Items, Net. The following table sets forth details of our other items, net for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Foreign exchange gain (loss)  $(140)  $(944)  $804 
Bank charges, fees and other   (72)   (52)   (20)
Withholding tax on interest expense and other   (1,274)   (1,228)   (46)
Total other items, net  $(1,486)  $(2,224)  $738 

 

Other items, net were $1.5 million for the six months ended June 30, 2018, a decrease of $0.7 million from $2.2 million for the six months ended June 30, 2017. The decrease is mainly due to reduced foreign exchange loss.

 

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Income (loss) before tax  $45,605   $32,198   $13,407 

 

Income before tax for the six months ended June 30, 2018 was $45.6 million, an increase of $13.4 million from $32.2 million for the six months ended June 30, 2017. The income before tax for both periods was impacted by unrealized gains on derivative instruments mainly on the Partnership’s share of equity in earnings (losses) of joint ventures. Excluding all the unrealized gains on derivative instruments, income before tax for the six months ended June 30, 2018 was $34.9 million, an increase of $5.3 million from $29.6 million for the six months ended June 30, 2017. Excluding the unrealized gain on derivative instruments, the increase is primarily due to lower total operating expenses and interest expenses.

 

 8 

 

 

Income Tax Expense. The following table sets forth details of our income tax expense for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Income tax expense  $(3,975)  $(3,797)  $(178)

 

Income tax expense for the six months ended June 30, 2018 was $4.0 million, an increase of $0.2 million compared to $3.8 million for the six months ended June 30, 2017. We are not subject to Marshall Islands income taxes. However, we are subject to tax for earnings of our subsidiaries incorporated in Singapore, Indonesia, Colombia, Cyprus and the UK and certain Colombian source income. For the six months ended June 30, 2018 and 2017, the income tax expense largely related to activities in Indonesia, Colombia and Singapore. The Singapore subsidiary’s taxable income mainly arises from internal interest income. The charterer in Colombia pays certain taxes directly to the Colombian tax authorities on behalf of the Partnership’s subsidiaries that own and operate the Höegh Grace ("the Höegh Grace entities"). The tax payments are a mechanism for advance collection of income taxes for the Colombian subsidiary and a final income tax on Colombian source income for the non-Colombian subsidiary. We concluded these third-party payments to the tax authorities represent income taxes that must be accounted for under the guidance for income taxes. The amount of non-cash income tax expense was $0.4 million for both the six months ended June 30, 2018 and 2017.

 

Benefits of uncertain tax positions are recognized when it is more-likely-than-not that a tax position taken in a tax return will be sustained upon examination based on the technical merits of the position. For the six months ended June 30, 2018 and 2017, the estimated generation of taxable income resulted in the utilization of $0.8 million and $0.2 million of tax loss carryforward in Indonesia which was not recognized due to the uncertainty of this tax position. As a result, a long-term income tax payable of $0.8 million and $0.2 was recorded for the uncertain tax position for the six months ended June 30, 2018 and 2017, respectively. The Indonesian subsidiary has been notified that it will be subject to a tax examination for the fiscal years of 2013 and 2014. Tax examinations may lead to ordinary course adjustments or proposed adjustments to the Partnership's taxes or tax loss carryforwards with respect to years under examination. Such an examination may or may not result in changes to the Partnership’s provisions on tax filings from 2013 through 2017. Refer to note 14 to the unaudited condensed interim consolidated financial statements contained herein.

 

Net Income (Loss). The following table sets forth details of our net income (loss) for the six months ended June 30, 2018 and 2017:

 

           Positive 
   Six months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Net income (loss)  $41,630   $28,401   $13,229 
Non-controlling interest in net income       5,556    (5,556)
Preferred unitholders' interest in net income   5,663        5,663 
Limited partners’ interest in net income (loss)  $35,967   $22,845   $13,122 

 

As a result of the foregoing, net income for the six months ended June 30, 2018 was $41.6 million, an increase of $13.2 million from net income of $28.4 million for the six months ended June 30, 2017. For the six months ended June 30, 2017, net income of $5.6 million was attributable to non-controlling interest for the 49% interest in Höegh Colombia Holding, the owner of the Höegh Grace entities, not owned by us in the period from January 1, 2017 to June 30, 2017. On December 1, 2017, we acquired the remaining 49% ownership interest in the Höegh Grace entities and, as of that date, there was no longer a non-controlling interest in the Höegh Grace. For the six months ended June 30, 2018, net income of $5.7 million was attributable to the holders of the Series A preferred units due the issuance of Series A preferred units on October 5, 2017 and subsequently as part of our at-the-market ("ATM") program. Our limited partners' interest in net income for the six months ended June 30, 2018 was $36.0 million, an increase of $13.2 million from net income of $22.8 million for the six months ended June 30, 2017.

 

Segments

 

There are two operating segments. The segment profit measure is Segment EBITDA, which is defined as earnings before interest, taxes, depreciation, amortization and other financial items (gains and losses on derivative instruments and other items, net) less the non-controlling interest in Segment EBITDA. Segment EBITDA is reconciled to operating income and net income in the segment presentation below. The two segments are “Majority held FSRUs” and “Joint venture FSRUs.” In addition, unallocated corporate costs that are considered to benefit the entire organization, interest income from advances to joint ventures and interest expense related to the seller’s credit note and the outstanding balance on the $85 million revolving credit facility are included in “Other.”

 

 9 

 

 

For the six months ended June 30, 2018 and 2017, Majority held FSRUs includes the direct financing lease related to the PGN FSRU Lampung and the operating leases related to the Höegh Gallant and the Höegh Grace. For the six months ended June 30, 2018 and 2017, Joint Venture FSRUs include two 50% owned FSRUs, the Neptune and the GDF Suez Cape Ann, that operate under long-term time charters with one charterer.

 

The accounting policies applied to the segments are the same as those applied in the financial statements, except that i) Joint Venture FSRUs are presented under the proportional consolidation method for the segment note and in the tables below, and under equity accounting for the consolidated financial statements and ii) non-controlling interest in Segment EBITDA is subtracted in the segment note and the tables below to reflect the Partnership’s interest in Segment EBITDA as the Partnership’s segment profit measure, Segment EBITDA. Under the proportional consolidation method, 50% of the Joint Venture FSRUs’ revenues, expenses and assets are reflected in the segment note. Management monitors the results of operations of joint ventures under the proportional consolidation method and not the equity method of accounting. On January 1, 2017, the Partnership began consolidating its acquired 51% interest in the Höegh Grace entities. Since the Partnership obtained control of the Höegh Grace entities, it consolidated 100% of the revenues, expenses, assets and liabilities of the Höegh Grace entities and the interest not owned by the Partnership was reflected as non-controlling interest in net income and non-controlling interest in total equity under US GAAP. Management monitored the results of operations of the Höegh Grace entities based on the Partnership’s 51% interest in Segment EBITDA of such entities and, therefore, subtracted the non-controlling interest in Segment EBITDA to present Segment EBITDA. The adjustment to non-controlling interest in Segment EBITDA is reversed to reconcile to operating income and net income in the segment presentation. On December 1, 2017, the Partnership acquired the remaining 49% ownership interest in the Höegh Grace entities and, as of that date, there is no longer a non-controlling interest in the Höegh Grace entities.

 

Majority held FSRUs. The following table sets forth details of segment results for the Majority held FSRUs for the six months ended June 30, 2018 and 2017:

 

   Six months ended   Positive 
Majority Held FSRUs  June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Time charter revenues  $70,395   $70,101   $294 
Other revenues   1,100        1,100 
Total revenues   71,495    70,101    1,394 
Vessel operating expenses   (11,215)   (11,805)   590 
Construction contract expense       (151)   151 
Administrative expenses   (1,702)   (2,150)   448 
Less: Non-controlling interest in Segment EBITDA       (10,417)   10,417 
Segment EBITDA   58,578    45,578    13,000 
Add: Non-controlling interest in Segment EBITDA       10,417    (10,417)
Depreciation and amortization   (10,536)   (10,526)   (10)
Operating income (loss)   48,042    45,469    2,573 
Gain (loss) on derivative instruments   1,175    910    265 
Other financial income (expense), net   (13,409)   (15,483)   2,074 
Income (loss) before tax   35,808    30,896    4,912 
Income tax expense   (3,954)   (3,797)   (157)
Net income (loss)  $31,854   $27,099   $4,755 
Non-controlling interest in net income       5,556    (5,556)
Limited partners' interest in net income (loss)  $31,854   $21,543   $10,311 

 

Time charter revenues for the six months ended June 30, 2018 were $70.4 million, an increase of $0.3 million from the six months ended June 30, 2017. As discussed in more detail above, the main reason for higher time charter revenues was slightly higher revenues for the PGN FSRU Lampung partially offset by slightly lower revenues for the Höegh Grace related to reimbursable items. The Höegh Gallant had off-hire or reduced hire days principally related to scheduled maintenance for both the six months ended June 30, 2018 and 2017. The PGN FSRU Lampung and the Höegh Grace were on-hire for the entire first half of 2018 and 2017.

 

 10 

 

 

Other revenue consists of insurance proceeds received, subsequent to June 30, 2018, for claims related to repairs under a warranty provision related to the Mooring which were completed in 2017. The Partnership was indemnified by Höegh LNG for the cost of the repairs, subject to repayment to the extent recovered from insurance proceeds. The $1.1 million is expected to be refunded to Höegh LNG during the third quarter of 2018.

 

Vessel operating expenses for the six months ended June 30, 2018 were $11.2 million compared to $11.8 million for the six months ended June 30, 2017. The decrease reflects reduced vessel operating expenses for each of the PGN FSRU Lampung, the Höegh Gallant and the Höegh Grace.

 

Construction contract expenses were $0.2 million for the six months ended June 30, 2017. As discussed in more detail above, the expenses were for installation of replacement parts under a warranty related to the Mooring. 

 

Administrative expenses for the six months ended June 30, 2018 were $1.7 million, a decrease of $0.5 million from $2.2 million for the six months ended June 30, 2017, reflecting lower expenses for all the entities owning the vessels.

 

Segment EBITDA for the six months ended June 30, 2018 was $58.6 million, an increase of $13.0 million from $45.6 million for the six months ended June 30, 2017 mainly due to no longer having a non-controlling interest in Segment EBITDA because of the acquisition of the remaining 49% interest in the Höegh Grace entities, which closed on December 1, 2017. In addition, Segment EBITDA was positively impacted by the one-off receipt of insurance proceeds related to prior periods expenses.

 

Joint venture FSRUs. The following table sets forth details of segment results for the Joint venture FSRUs for the six months ended June 30, 2018 and 2017:

 

   Six months ended   Positive 
Joint Venture FSRUs  June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Time charter revenues  $21,572   $21,149   $423 
Vessel operating expenses   (4,231)   (4,231)   - 
Administrative expenses   (951)   (372)   (579)
Segment EBITDA   16,390    16,546    (156)
Depreciation and amortization   (4,800)   (4,916)   116 
Operating income (loss)   11,590    11,630    (40)
Gain (loss) on derivative instruments   9,482    1,711    7,771 
Other income (expense), net   (6,591)   (6,981)   390 
Income (loss) before tax   14,481    6,360    8,121 
Income tax expense            
Net income (loss)  $14,481   $6,360   $8,121 

 

Total time charter revenues for the six months ended June 30, 2018 were $21.6 million, an increase of $0.5 million compared to $21.1 million for the six months ended June 30, 2017. Higher time charter revenues for the six months ended June 30, 2018 mainly reflects reimbursements of costs incurred for a new project for the charterer related to the GDF Suez Cape Ann.

 

Vessel operating expenses were $4.2 million for both the six months ended June 30, 2018 and 2017. Lower on-going vessel operating expenses related to the operations of the Neptune in Turkey for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 were offset by higher maintenance expenses for the six months ended June 30, 2018.

 

Administrative expenses were $1.0 million for the six months ended June 30, 2018, compared to $0.4 million for the six months ended June 30, 2017. The higher administrative expenses were mainly due to a new project for the charterer related to the GDF Suez Cape Ann and preparations for the dry-docking of the GDF Suez Cape Ann that commenced in August 2018. The GDF Suez Cape Ann will be on-hire during the dry-docking.

 

Segment EBITDA was $16.4 million for the six months ended June 30, 2018 compared with $16.5 million for the six months ended June 30, 2017.

 

 11 

 

 

Other. The following table sets forth details of other results for the six months ended June 30, 2018 and 2017:

 

   Six months ended   Positive 
Other  June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Administrative expenses  $(3,186)  $(3,072)  $(114)
Segment EBITDA   (3,186)   (3,072)   (114)
Operating income (loss)   (3,186)   (3,072)   (114)
Other financial income (expense), net   (1,498)   (1,986)   488 
Income (loss) before tax   (4,684)   (5,058)   374 
Income tax expense   (21)       (21)
Net income (loss)  $(4,705)  $(5,058)  $353 

 

Administrative expenses and Segment EBITDA for the six months ended June 30, 2018 were $3.2 million, an increase of $0.1 million from $3.1 million for the six months ended June 30, 2017.

 

Other financial income (expense), net, which is not part of the segment measure of profits, is related to the interest income accrued on the advances to our joint ventures and bank accounts and interest expense for a seller’s credit note, which was fully repaid in October 2017, and the $85 million revolving credit facility.

 

Other financial income (expense), net was an expense of $1.5 million for the six months ended June 30, 2018, a decrease of $0.5 million from $2.0 million for the six months ended June 30, 2017.

 

Three Months Ended June 30, 2018 Compared with the Three Months Ended June 30, 2017

 

Revenues. The following table sets forth details of our revenues for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Time charter revenues  $35,510   $35,024   $486 
Other revenue   1,100        1,100 
Total revenues  $36,610   $35,024   $1,586 

 

Time charter revenues for the three months ended June 30, 2018 were $35.5 million, an increase of $0.5 million from the three months ended June 30, 2017. Time charter revenue increased by $0.5 million due to higher time charter revenue for the Höegh Gallant for the three months ended June 30, 2018 which was partially offset by reduced time charter revenue for reimbursement of costs for the PGN FSRU Lampung and the Höegh Grace. The Höegh Gallant was onhire for the entire three months ended June 30, 2018. During the three months of ended June 30, 2017, the Höegh Gallant incurred 8 days of off-hire for scheduled maintenance and several days of reduced hire.

 

Other revenue consists of insurance proceeds received, subsequent to June 30, 2018, for claims related to repairs under a warranty provision related to the Mooring which were completed in 2017. Refer to "Construction Contract Expenses" below.

 

 12 

 

 

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Vessel operating expenses  $(5,462)  $(5,628)  $166 

 

Vessel operating expenses for the three months ended June 30, 2018 were $5.5 million, a decrease of $0.1 million from the $5.6 million for the three months ended June 30, 2017.The decrease is mainly due to lower vessel operating expenses for the Höegh Gallant.

 

Construction Contract Expenses. The following table sets forth details of our construction contract expenses for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Construction contract expenses  $   $(151)  $151 

 

As discussed in more detail above, the construction contract expenses were for installation of replacement parts under a warranty related to the Mooring. The warranty expenses were $0.2 million for the three months ended June 30, 2017. Part of the costs incurred for the remaining warranty replacements, net of deductible amounts, were anticipated to be recoverable under insurance coverage. Subsequent to June 30, 2018, $1.1 million of the insurance claim was received which was recognized as Other revenue for the three months ended June 30, 2018. We were indemnified by Höegh LNG for all warranty provisions at the time the costs were incurred, subject to repayment to the extent recovered by insurance. The $1.1 million is expected to be refunded to Höegh LNG during the third quarter of 2018.

 

Administrative Expenses. The following table sets forth details of our administrative expenses for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Administrative expenses  $(2,101)  $(2,465)  $364 

 

Administrative expenses for the three months ended June 30, 2018 were $2.1 million, a decrease of $0.4 million from $2.5 million for the three months ended June 30, 2017. The main reasons for the decrease was lower administrative expenses for the Other segment and lower administrative expenses related to the PGN FSRU Lampung for the three months ended June 30, 2018.

 

Depreciation and Amortization. The following table sets forth details of our depreciation and amortization for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Depreciation and amortization  $(5,268)  $(5,263)  $(5)

 

Depreciation and amortization was $5.3 million for each of the three months ended June 30, 2018 and 2017.

 

 13 

 

 

Total Operating Expenses. The following table sets forth details of our total operating expenses for the three months ended June 30, 2018 and 2017: 

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Total operating expenses  $(12,831)  $(13,507)  $676 

 

Total operating expenses for the three months ended June 30, 2018 were $12.8 million, a decrease of $0.7 million from $13.5 million for the three months ended June 30, 2017. The decrease is mainly due to the lower vessel operating expenses for the Höegh Gallant and lower administrative expenses for the PGN FSRU Lampung and the Other segment. 

 

Equity in Earnings (Losses) of Joint ventures. The following table sets forth details of our equity in earnings (losses) of joint ventures for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Equity in earnings (losses) of joint ventures  $5,111   $1,551   $3,560 

 

Equity in earnings of joint ventures for the three months ended June 30, 2018 was $5.1 million, an increase of $3.5 million from $1.6 million for the three months ended June 30, 2017. Unrealized losses on derivative instruments in our joint ventures significantly impacted the equity in earnings (losses) of joint ventures for the three months ended June 30, 2018 and 2017. 

 

Excluding the unrealized gain (loss) on derivative instruments for the three months ended June 30, 2018 and 2017, the equity in earnings of joint ventures would have been $2.1 million for the three months ended June 30, 2018, a decrease of $0.2 million compared to $2.3 million for the three months ended June 30, 2017.

 

Our share of our joint ventures’ operating income was $5.5 million for the three months ended June 30, 2018, a decrease of $0.3 million compared with $5.8 million for the three months ended June 30, 2017. Our share of other expense, net, principally consisting of interest expense, was $3.3 million for the three months ended June 30, 2018, a decrease of $0.1 million from $3.4 million for the three months ended June 30, 2017.

 

Our share of unrealized gains on derivative instruments was $3.0 million for the three months ended June 30, 2018, an increase of $3.8 million from unrealized losses of $0.8 million for the three months ended June 30, 2017.

 

There was no accrued income tax expense for the three months ended June 30, 2018 and 2017. Our joint ventures did not pay any dividends for the three months ended June 30, 2018 and 2017.

 

Operating Income (Loss). The following table sets forth details of our operating income (loss) for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Operating income (loss)  $28,890   $23,068   $5,822 

 

Operating income for the three months ended June 30, 2018 was $28.9 million, an increase of $5.8 million from operating income of $23.1 million for the three months ended June 30, 2017. Excluding the impact of the unrealized gains (losses) on derivatives for the three months ended June 30, 2018 and 2017 impacting the equity in earnings (losses) of joint ventures, operating income for the three months ended June 30, 2018 would have been $25.9 million, an increase of $2.0 million from $23.9 million for the three months ended June 30, 2017. The increase for the three months ended June 30, 2018 was primarily due to the one-off receipt of insurance proceeds related to prior periods expenses and lower total operating expenses

 

 14 

 

 

Interest Income. The following table sets forth details of our interest income for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Interest income  $174   $113   $61 

 

Interest income for the three months ended June 30, 2018 was $0.2 million, an increase of $0.1 million from $0.1 million for the three months ended June 30, 2017. Interest income is mainly related to interest accrued on the advances to our joint ventures and cash balances for the three months ended June 30, 2018 and 2017, respectively. The interest rate under the shareholder loans is a fixed rate of 8.0% per year.

 

Interest Expense. The following table sets forth details of our interest expense for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Interest expense  $(6,742)  $(7,301)  $559 
Commitment fees   -    (241)   241 
Amortization of debt issuance cost and fair value of debt assumed   (176)   (210)   34 
Total interest expense  $(6,918)  $(7,752)  $834 

  

Total interest expense for the three months ended June 30, 2018 was $6.9 million, a decrease of $0.9 million from $7.8 million for the three months ended June 30, 2017. Interest expense consists of the interest incurred, commitment fees and amortization of debt issuance cost and fair value of debt assumed for the period.

 

The interest incurred of $6.7 million for the three months ended June 30, 2018, decreased by $0.6 million compared to $7.3 million for the three months ended June 30, 2017, principally due to repayment of outstanding loan balances for the Lampung facility, the Gallant facility and the Grace facility and the repayment of the seller's credit note in October 2017. The positive impact on interest expense of the repayment of the seller’s credit note was partially offset by the increased outstanding balance on the revolving credit facility.

 

Commitment fees were $0.0 million for the three months ended June 30, 2018, a decrease of $0.2 million from $0.2 million for the three months ended June 30, 2017. The commitment fees relate to the undrawn balance of the $85 million revolving credit facility. On January 29, 2018, the revolving credit facility was amended to eliminate the requirement to pay a commitment fee on the undrawn balance of the facility as of that date.

 

Amortization of debt issuance cost and fair value of debt assumed were $0.2 million for each of the three months ended June 30, 2018 and 2017.

 

Gain (Loss) on Derivative Instruments. The following table sets forth details of our gain (loss) on derivative instruments for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Gain (loss) on derivative instruments  $544   $247   $297 

 

Gain on derivative instruments for the three months ended June 30, 2018 was $0.5 million, an increase of $0.3 million compared to the three months ended June 30, 2017. Gain on derivative instruments for the three months ended June 30, 2018 and 2017 related to the interest rate swaps for the Lampung facility, the Gallant facility and the Grace facility. The increase is mainly due to a lower loss on the ineffective portion of the cash flow hedges for the three months ended June 30, 2018 compared with the three months ended June 30, 2017. 

 

 15 

 

 

Other Items, Net. The following table sets forth details of our other items, net for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Foreign exchange gain (loss)  $(198)  $(811)  $613 
Bank charges, fees and other   (37)   (29)   (8)
Withholding tax on interest expense and other   (645)   (582)   (63)
Total other items, net  $(880)  $(1,422)  $542 

 

Other items, net for the three months ended June 30, 2018 were $0.9 million, a decrease of $0.5 million from $1.4 million for the three months ended June 30, 2017. The decrease is mainly due to the reduced net foreign exchange loss partly offset by increased withholding tax on interest and other expenses.

 

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Income (loss) before tax  $21,810   $14,254   $7,556 

  

Income before tax for the three months ended June 30, 2018 was $21.8 million, an increase of $7.5 million from $14.3 million for the three months ended June 30, 2017. The income before tax for both periods was impacted by the unrealized gains (losses) on derivative instruments mainly on the Partnership’s share of equity in earnings (losses) of joint ventures. Excluding all the unrealized gains (losses) on derivative instruments, income before tax for the three months ended June 30, 2018 was $18.3 million, an increase of $3.5 million from $14.8 million for the three months ended June 30, 2017. Excluding the unrealized gain (loss) on derivative instruments, the increase is primarily due to lower total financial expense, net, the one-off receipt of insurance proceeds related to prior periods expenses and lower total operating expenses.

 

Income Tax Expense. The following table sets forth details of our income tax expense for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Income tax expense  $(1,866)  $(2,042)  $176 

 

Income tax expense for the three months ended June 30, 2018 was $1.9 million, a decrease of $0.1 million compared to $2.0 million for the three months ended June 30, 2017. We are not subject to Marshall Islands income taxes. However, we are subject to tax for earnings of our subsidiaries incorporated in Singapore, Indonesia, Colombia, Cyprus and the UK and certain Colombian source income. For the three months ended June 30, 2018 and 2017, the income tax expense largely related to activities in Singapore, Indonesia and Colombia. The charterer in Colombia pays certain taxes directly to the Colombian tax authorities on the Höegh Grace entities. The tax payments are a mechanism for advance collection of part of the income taxes for the Colombian subsidiary and a final income tax on Colombian source income for the non-Colombian subsidiary. We concluded these third party payments to the tax authorities represent income taxes that must be accounted for under the guidance for income taxes. The amount of non-cash income tax expense was $0.2 million and $0.4 million for the three months ended June 30, 2018 and 2017, respectively.

 

Benefits of uncertain tax positions are recognized when it is more-likely-than-not that a tax position taken in a tax return will be sustained upon examination based on the technical merits of the position. For the three months ended June 30, 2018 and 2017, the estimated generation of taxable income resulted in the utilization of $0.4 and $0.1 million, respectively, of tax loss carryforward in Indonesia which was not recognized due to the uncertainty of this tax position. The Indonesian subsidiary has been notified that it will be subject to a tax examination for the fiscal years of 2013 and 2014. Tax examinations may lead to ordinary course adjustments or proposed adjustments to the Partnership's taxes or tax loss carryforwards with respect to years under examination. Such an examination may or may not result in changes to the Partnership’s provisions on tax filings from 2013 through 2017. Refer to note 14 to the unaudited condensed interim consolidated financial statements contained herein.

 

 16 

 

 

Net Income (Loss). The following table sets forth details of our net income (loss) for the three months ended June 30, 2018 and 2017:

 

           Positive 
   Three months ended June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Net income (loss)  $19,944   $12,212   $7,732 
Non-controlling interest in net income       2,812    (2,812)
Preferred unitholders' interest in net income   3,003        3,003 
Limited partners’ interest in net income (loss)  $16,941   $9,400   $7,541 

 

As a result of the foregoing, net income for the three months ended June 30, 2018 was $19.9 million, an increase of $7.7 million from net income of $12.2 million for the three months ended June 30, 2017. For the three months ended June 30, 2017, net income of $2.8 million was attributable to non-controlling interest for the 49% interest in Höegh Colombia Holding, the owner of the Höegh Grace entities, not owned by us in the period from April 1, 2017 to June 30, 2017. On December 1, 2017, we acquired the remaining 49% ownership interest in the Höegh Grace entities and, as of that date, there was no longer a non-controlling interest in the Höegh Grace. For the three months ended June 30, 2018, net income of $3.0 million was attributable to the holders of the Series A preferred units due the issuance of Series A preferred units on October 5, 2017 and subsequently as part of our ATM program. Our limited partners' interest in net income for the three months ended June 30, 2018 was $16.9 million, an increase of $7.5 million from net income of $9.4 million for the three months ended June 30, 2017.

  

Segments

 

Majority held FSRUs. The following table sets forth details of segment results for the Majority held FSRUs for the three months ended June 30, 2018 and 2017:

 

   Three months ended   Positive 
Majority Held FSRUs  June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Time charter revenues  $35,510   $35,024   $486 
Other revenues   1,100        1,100 
Total revenues   36,610    35,024    1,586 
Vessel operating expenses   (5,462)   (5,628)   166 
Construction contract expense       (151)   151 
Administrative expenses   (921)   (1,065)   144 
Less: Non-controlling interest in Segment EBITDA       (5,423)   5,423 
Segment EBITDA   30,227    22,757    7,470 
Add: Non-controlling interest in Segment EBITDA       5,423    (5,423)
Depreciation and amortization   (5,268)   (5,263)   (5)
Operating income (loss)   24,959    22,917    2,042 
Gain (loss) on derivative instruments   544    247    297 
Other financial income (expense), net   (6,839)   (8,028)   1,189 
Income (loss) before tax   18,664    15,136    3,528 
Income tax expense   (1,845)   (2,042)   197 
Net income (loss)  $16,819   $13,094   $3,725 
Non-controlling interest in net income       2,812    (2,812)
Limited partners' interest in net income (loss)  $16,819   $10,282   $6,537 

 

 17 

 

 

Time charter revenues for the three months ended June 30, 2018 were $35.5 million, an increase of $0.5 million from the three months ended June 30, 2017. As discussed above, higher time charter revenue for the Höegh Gallant for the three months ended June 30, 2018 which was partially offset by reduced time charter revenue for reimbursement of costs for the PGN FSRU Lampung and the Höegh Grace. The Höegh Gallant had 10 days of off-hire for scheduled maintenance in the first quarter of 2018 while it had off-hire due to scheduled maintenance and several days of reduced hire in the second quarter of 2017. The PGN FSRU Lampung and the Höegh Grace were on-hire for the entire second quarters of 2018 and 2017. 

 

Other revenue consists of insurance proceeds received, subsequent to June 30, 2018, for claims related to repairs under a warranty provision related to the Mooring which were completed in 2017.

 

Vessel operating expenses for the three months ended June 30, 2018 were $5.5 million, a decrease of $0.1 million compared to $5.6 million for the three months ended June 30, 2017. The decrease is mainly due to lower vessel operating expenses for the Höegh Gallant.

 

Construction contract expenses were $0.2 million for the three months ended June 30, 2017. As discussed in more detail above, construction contract expenses related to replacement of equipment parts under the Mooring warranty.

 

Administrative expenses for the three months ended June 30, 2018 were $0.9 million, a decrease of $0.2 million from $1.1 million for the three months ended June 30, 2017, mainly due to lower administrative expenses for the PGN FSRU Lampung.

 

Segment EBITDA for the three months ended June 30, 2018 was $30.2 million, an increase of $7.4 million from $22.8 million for the three months ended June 30, 2017 mainly due to no longer having a non-controlling interest in Segment EBITDA because of the acquisition of the remaining 49% interest in the Höegh Grace entities, which closed on December 1, 2017. In addition, Segment EBITDA was positively impacted by no off-hire for the Höegh Gallant in the second quarter of 2018 and the one-off receipt of insurance proceeds related to prior periods expenses.

 

Joint venture FSRUs. The following table sets forth details of segment results for the Joint venture FSRUs for the three months ended June 30, 2018 and 2017:

 

   Three months ended   Positive 
Joint Venture FSRUs  June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Time charter revenues  $10,576   $10,225   $351 
Total revenues   10,576    10,225    351 
Vessel operating expenses   (2,116)   (1,834)   (282)
Administrative expenses   (593)   (150)   (443)
Segment EBITDA   7,867    8,241    (374)
Depreciation and amortization   (2,399)   (2,476)   77 
Operating income (loss)   5,468    5,765    (297)
Gain (loss) on derivative instruments   2,967    (785)   3,752 
Other income (expense), net   (3,324)   (3,429)   105 
Income (loss) before tax   5,111    1,551    3,560 
Income tax expense            
Net income (loss)  $5,111   $1,551   $3,560 

 

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Total time charter revenues for the three months ended June 30, 2018 were $10.6 million, an increase of $0.4 million compared to $10.2 million for the three months ended June 30, 2017. Time charter revenues for the three months ended June 30, 2018 reflected higher recovery of costs incurred related to the operations of the Neptune in Turkey and the new charterer project related to the GDF Suez Cape Ann.

 

Vessel operating expenses were $2.1 million for the three months ended June 30, 2018 compared to $1.8 million for the three months ended June 30, 2017. Somewhat lower on-going vessel operating expenses related to the operations of the Neptune in Turkey were more than offset by higher maintenance cost and project expenses for the GDF Suez Cape Ann in the three months ended June 30, 2018.

 

Administrative expenses for the three months ended June 30, 2018 were $0.6 million, an increase of $0.4 million compared to $0.2 million for the three months ended June 30, 2017. The main reason for the increase in administrative expenses for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 was increased costs incurred in relation to a new project for the charterer related to the GDF Suez Cape Ann.

 

Segment EBITDA was $7.9 million for the three months ended June 30, 2018 compared with $8.2 million for the three months ended June 30, 2017.

 

Other. The following table sets forth details of other results for the three months ended June 30, 2018 and 2017:

 

   Three months ended   Positive 
Other  June 30,   (negative) 
(in thousands of U.S. dollars)  2018   2017   variance 
Administrative expenses  $(1,180)  $(1,400)  $220 
Segment EBITDA   (1,180)   (1,400)   220 
Operating income (loss)   (1,180)   (1,400)   220 
Other financial income (expense), net   (785)   (1,033)   248 
Income (loss) before tax   (1,965)   (2,433)   468 
Income tax expense   (21)       (21)
Net income (loss)  $(1,986)  $(2,433)  $447 

 

Administrative expenses and Segment EBITDA for the three months ended June 30, 2018 were $1.2 million, a decrease of $0.2 million from $1.4 million for the three months ended June 30, 2017 mainly due to lower advisor costs.

 

Other financial income (expense), net, which is not part of the segment measure of profits, is related to the interest income accrued on the advances to our joint ventures and cash accounts and interest expense for a seller’s credit note which was fully repaid in October 2017 and the $85 million revolving credit facility.

 

Other financial income (expense), net was an expense of $0.8 million for the three months ended June 30, 2018, a decrease of $0.2 million from $1.0 million for the three months ended June 30, 2017 principally due to lower interest expense, including commitment fees.

 19 

 

 

Liquidity and Capital Resources

 

Liquidity and Cash Needs

 

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 cash from operations, the utilization of borrowings from commercial banks and debt and equity financings. Our liquidity requirements relate to paying our unitholder distributions, servicing interest and quarterly repayments on our debt (“debt amortization”), funding working capital and maintaining cash reserves against fluctuations in operating cash flows. The liquidity requirements of our joint ventures relate to the servicing of debt, including repayment of shareholder loans, funding working capital, including drydocking and maintenance, and maintaining cash reserves against fluctuations in operating cash flows.

 

Our sources of liquidity include cash balances, cash flows from our operations, our current undrawn balance of $39.7 million as of June 30, 2018 under the $85 million revolving credit facility from Höegh LNG and net proceeds from our ATM program. Cash and cash equivalents are denominated primarily in U.S. dollars. We do not currently use derivative instruments for other purposes than managing interest rate risks. Historically, interest payments from our advances to joint ventures were a source of liquidity. The advances to our joint ventures (accrued interest from prior periods) are subordinated to the joint ventures’ long-term bank debt, consisting of the Neptune facility and the Cape Ann facility. Under terms of the shareholder loan agreements, the repayments shall be prioritized over any dividend payment to the owners of the joint ventures. As discussed in note 14 under "Joint ventures claims and accruals" to the unaudited condensed interim consolidated financial statements, the joint ventures have recorded accruals for the probable liability for boil-off claim under the time charters. As a precaution, the joint ventures have suspended payments on the shareholder loans pending the outcome of the boil-off claim since the amounts and timing of a potential settlement are not clear. The suspension of the payments on the shareholder loans reduce cash flows available to us. In addition, as discussed in Note 8, certain conditions apply to making distributions for the shareholder loans or dividends, including meeting a 1.20 historical and projected debt service ratio. As of June 30, 2018, the debt service ratio requirements were not met by either of the joint ventures. As a result, no distribution can be made unless the debt service ratio is met in future periods. Dividend distributions from our joint ventures require a) agreement of the other joint venture owners; b) fulfilment of requirements of the long-term bank loans; and c) under Cayman Islands law may be paid out of profits or capital reserves subject to the joint venture being solvent after the distribution. Dividends from Höegh Lampung may only be paid out of profits under Singapore law. Dividends from PT Höegh may only be paid if its retained earnings are positive under Indonesian law and requirements are fulfilled under the Lampung facility. In addition, PT Höegh, as an Indonesian incorporated company, is required to establish a statutory reserve equal to 20% of its paid up capital. The dividend can only be distributed if PT Höegh’s retained earnings are positive after deducting the statutory reserve. As of June 30, 2018, PT Höegh did not have adequate positive retained earnings to establish the required statutory reserves and therefore cannot make dividend payments under Indonesia law. However, subject to meeting a debt service ratio of 1.20 to 1.00, PT Höegh can distribute cash from its cash flow from operations to us as payment of intercompany accrued interest and/or intercompany debt, after quarterly payments of the Lampung facility and fulfilment of the “waterfall” provisions to meet operating requirements as defined by the Lampung facility. Under Cayman Islands law, Höegh FSRU III, Höegh FSRU IV and Höegh Colombia Holding may only pay distributions out of profits or capital reserves if the entity is solvent after the distribution. In addition, Höegh FSRU IV would also need to remain in compliance with the financial covenants under the Gallant/Grace facility. Dividends from Höegh Cyprus may only be distributed (i) out of profits and not from the share capital of the company and (ii) if after the dividend payment, Höegh Cyprus would remain in compliance with the financial covenants under the Gallant/Grace facility. Dividends from Höegh Colombia may only be distributed if after the dividend payment, Höegh Colombia would remain in compliance with the financial covenants under the Gallant/Grace facility.

 

For a description of our credit facilities and revolving credit facility, please see notes 14 and 17 to the audited consolidated financial statements contained in our 2017 Form 20-F as well as notes 9 and 11 to the unaudited condensed interim consolidated financial statements contained in this Report on Form 6-K. 

 

As of June 30, 2018, we do not have material commitments for capital expenditures for our current business. As discussed in note 14 under "Joint ventures claims and accruals" in our unaudited condensed interim consolidated financial statements, the joint ventures have a probable liability for a boil-off claim under the time charters. Our 50% share of the accrual was approximately $11.9 million as of June 30, 2018. The joint ventures will continue to monitor this issue and adjust accruals, as might be required, based upon additional information and further developments. The parties have referred the claim to arbitration. To the extent that excess boil-off claims result in a settlement, we would be indemnified by Höegh LNG for our share of the cash impact of any settlement. However, other concessions or capital improvements, if any, would not be expected to be indemnified. In addition, the joint ventures expect to incur costs for certain capital improvements and maintenance that will not be reimbursed by the charterer or Hoegh LNG for which the Partnership's 50% share is approximately $1.7 million and $1.2 million for the years ended December 31, 2018 and 2019, respectively. The capital improvements are expected to reduce boil-off in certain modes of operation and other maintenance upgrades are planned.

 

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The Höegh Gallant operates under a long-term time charter which started in April 2015 with an expiration date in April 2020 with Hoegh LNG Egypt LLC (“EgyptCo”), a subsidiary of Höegh LNG. EgyptCo has a charter with the government-owned Egyptian Natural Gas Holding Company (“EGAS”). The charter between EgyptCo and EGAS allows for early termination only with the mutual consent of both parties. In the first quarter of 2018, EGAS requested to meet with EgyptCo to seek agreement on terms for an early termination of the charter. Such an agreement would require consent of EgyptCo. Pursuant to an option agreement, the Partnership has the right to cause Höegh LNG to charter the Höegh Gallant from the expiration or termination of the EgyptCo charter until July 2025, at a rate equal to 90% of the rate payable pursuant to the current charter with EgyptCo, plus any incremental taxes or operating expenses as a result of the new charter. Höegh LNG’s ability to make payments to us with respect to an exercise of the option by us may be affected by events beyond our and its control, including opportunities to obtain new employment for the vessel, prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, Höegh LNG’s ability to meet its obligations to us may be impaired. If Höegh LNG is unable to meet its obligations to us for the option, our financial condition, results of operations and ability to make cash distributions to our unitholders could be materially adversely affected.

 

In January 2018, we entered into a sales agreement with B. Riley Inc. (the "Agent"). Under the terms of the sales agreement, the Partnership may sell up to $120 million aggregate offering amount of common and Series A preferred units (the "ATM program"), from time to time, through the Agent. During the three months ended June 30, 2018, we had sold 478,874 Series A preferred units at an average gross sales price of $25.64 per unit and received net proceeds, after sales commissions, of $12.1 million. During the three months ended June 30, 2018, we had sold 16,875 common units at an average gross price of $18.36 per unit and received net proceeds, after sales commissions, of $0.3 million. The Partnership has paid an aggregate of $0.2 million in sales commissions to the Agent in connection with such sales for the three months ended June 30, 2018. As of June 30, 2018, we had sold a total of 788,026 Series A preferred units at an average gross sales price of $25.84 per unit and received net proceeds, after sales commissions, of $20.0 million. As of June 30, 2018, we had sold a total of 171,375 common units at an average gross price of $18.23 per unit and received net proceeds, after sales commissions, of $3.0 million. The Partnership has paid an aggregate of $0.4 million in sales commissions to the Agent in connection with all such sales as of June 30, 2018. We used the net proceeds from sales under the ATM program for general partnership purposes, including repayment of the revolving credit facility and unit distribution payments.

 

As of June 30, 2018, we had cash and cash equivalents of $21.0 million and an undrawn portion of $39.7 million of the $85 million revolving credit facility. On August 21, 2018, we repaid $6.0 million on the revolving credit facility from the net proceeds of the ATM program. As a result, the undrawn portion of the $85 million revolving credit facility increased to $45.7 million. Current restricted cash for operating obligations of the PGN FSRU Lampung was $6.0 million and long-term restricted cash required under the Lampung facility was $13.4 million as of June 30, 2018.

 

The Partnership’s book value and outstanding principal of total long-term debt was $503.2 million and $508.3 million, respectively, as of June 30, 2018, including long-term debt financing our FSRUs, and the revolving credit facility due to owners and affiliates. The long-term debt is repayable in quarterly installments of $11.4 million. For a description of our credit facilities, please see notes 14 and 17 to the audited consolidated financial statements contained in our 2017 Form 20-F, as well as note 9 to the unaudited condensed interim consolidated financial statements contained in this Report on Form 6-K.

 

As of June 30, 2018, the Partnership had outstanding interest rate swap agreements for a total notional amount of $395.7 million to hedge against the interest rate risks of its long-term debt under the Lampung, Gallant and Grace facilities. For additional information, refer to “Qualitative and Quantitative Disclosure About Market Risk” and note 13 to the unaudited condensed interim consolidated financial statements. As of June 30, 2018, the Partnership’s total current liabilities exceeded total current assets by $13.7 million. This is partly a result of the current portion of long-term debt of $45.5 million being classified current while the restricted cash of $13.4 million associated with the Lampung facility is classified as long-term. The current portion of long-term debt reflects principal payments for the next twelve months which will be funded, for the most part, by future cash flows from operations. We do not intend to maintain a cash balance to fund our next twelve months’ net liabilities. We believe our cash flows from operations, including distributions to us from PT Höegh, Höegh Cyprus, and Höegh FSRU IV as payment of intercompany interest and/or intercompany debt or dividends, will be sufficient to meet our debt amortization and working capital needs and maintain cash reserves against fluctuations in operating cash flows. In addition, we require liquidity to pay distributions to our unitholders. Our available balance on the $85 million revolving credit facility provides a source of liquidity reserve to supplement funding of our distributions and other general liquidity needs. In addition, liquidity can also be supplemented, from time to time, by net proceeds of the ATM program, depending on the market conditions. We believe our current resources, including the undrawn balance on the revolving credit facility, are sufficient to meet our working capital requirements for our current business for the next twelve months. Further, the Partnership is working to refinance the Gallant/ Grace facility well in advance of its first maturity in November 2019.

 

On May 15, 2018, the Partnership paid a quarterly cash distribution with respect to the quarter ended March 31, 2018 of $0.44 per common and subordinated unit. The total amount of the distribution was $15.0 million.

 

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On May 15, 2018, the Partnership paid a quarterly cash distribution of $0.546875 per Series A preferred unit. The total amount of the distribution paid on May 15, 2018, was $2.8 million.

 

On May 16, 2018, we repaid $6.5 million on the revolving credit facility using part of the net proceeds of the ATM program.

 

On June 21, 2018, we repaid $5.0 million on the revolving credit facility using part of the net proceeds of the ATM program

 

On August 14, 2018, the Partnership paid a quarterly cash distribution with respect to the quarter ended June 30, 2018 of $0.44 per common and subordinated unit. The total amount of the distribution was $15.0 million.

 

On August 15, 2018 the Partnership paid a quarterly cash distribution of $0.546875 per Series A preferred unit. The total amount of the distribution paid on August 15, 2018 was $3.2 million.

 

For the period from July 2, 2018 to August 21, 2018, we had sold 506,887 Series A preferred units under our ATM program at an average gross sales price of $25.68 per unit and received net proceeds, after sales commissions, of $12.8 million. For the period from July 2, 2018 to August 21, 2018, we had sold 58,231 common units under our ATM program at an average gross sales price of $18.28 per unit and received net proceeds, after sales commissions, of $1.1 million. We have paid an aggregate of $0.2 million in sales commissions to the Agent in connection with all such sales in the period from July 2, 2018 to August 21, 2018. From the commencement of the ATM program, the Partnership has sold 1,294,913 Series A preferred units and 229,606 common units, and received net proceeds of $32.8 million and $4.1 million, respectively. The compensation paid to the Agent for such sales was $0.6 million.

 

Cash Flows

 

The following table summarizes our net cash flows from operating, investing and financing activities and our cash, cash equivalents and restricted cash for the periods presented:

 

   Three months ended   Six months ended 
   June 30,   June 30, 
(in thousands of U.S. dollars)  2018   2017   2018   2017 
Net cash provided by (used in) operating activities  $20,647    18,256    39,972   $38,599 
Net cash provided by (used in) investing activities   943    446    1,863    5,076 
Net cash provided by (used in) financing activities   (30,010)   (19,017)   (44,720)   (43,353)
Increase (decrease) in cash, cash equivalents and restricted cash   (8,420)   (315)   (2,885)   322 
Effect of exchange rate changes on cash and cash equivalents   (54)       (54)    
Cash, cash equivalents and restricted cash, beginning of period   48,816    41,761    43,281    41,124 
Cash, cash equivalents and restricted cash, end of period  $40,342    41,446    40,342   $41,446 

 

 22 

 

 

Six Months ended June 30, 2018 Compared with the Six Months ended June 30, 2017

 

Net Cash Provided by (Used in) Operating Activities

 

Net cash provided by operating activities was $40.0 million for the six months ended June 30, 2018, an increase of $1.4 million compared with $38.6 million for the six months ended June 30, 2017. Before changes in working capital, cash provided by operating activities was $41.4 million for the six months ended June 30, 2018, an increase of $1.6 million compared to the $39.8 million for the six months ended June 30, 2017 primarily due to increased earnings in the Majority held FRSU segment which was partially offset by the reduction on interest payments on advances to joint ventures for the six months ended June 30, 2018 compared with the six months ended June 30, 2017. Changes in working capital reduced net cash provided by operating activities by $1.4 million for the six months ended June 30, 2018, an increase of $0.2 million from a negative contribution of $1.2 million for the six months ended June 30, 2017.

 

Net Cash Provided by (Used in) Investing Activities

 

Net cash provided by investing activities was $1.9 and $5.1 million for the six months ended June 30, 2018 and 2017, respectively. The decrease in net cash provided by investing activities of $3.2 million was primarily the result of $3.8 million in cash acquired in the purchase of the initial 51% interest in the Höegh Grace entities for the six months ended June 30, 2017 partly offset by the cash settlement of working capital adjustment for the 51% interest in the Höegh Grace entities of $0.4 million for the six months ended June 30, 2017. For the six months ended June 30, 2018, cash provided by investing activities included $1.9 million in receipts of repayment on principal on the direct financing lease since the PGN FSRU Lampung charter is accounted for as a financial lease compared to $1.7 million for the corresponding period of 2017. 

 

Net Cash Provided by (Used in) Financing Activities

 

Net cash used in financing activities for the six months ended June 30, 2018 was $44.7 million compared with net cash used in financing activities of $43.4 million for the six months ended June 30, 2017.

 

Net cash used in financing activities for the six months ended June 30, 2018 was mainly due to the repayment of $9.5 million on the Lampung facility, $6.6 million on the Gallant facility, $6.6 million on the Grace facility and $11.5 million on the revolving credit facility, payment of $2.5 million on a customer loan for funding of VAT on import in Indonesia, payment of cash distributions to our common and subordinated unitholders of $29.4 million and payment of cash distribution to the holders of our Series A preferred units of $6.5 million. This was partially offset by receipt of $5.4 million under the revolving credit facility and net proceeds of $2.9 million and $19.6 million for the issuance of common units and Series A preferred units, respectively, under our ATM program.

 

Net cash used in financing activities for the six months ended June 30, 2017 was mainly due to the repayment of $9.5 million on the Lampung facility, $6.6 million on the Gallant facility, $6.6 million on the Grace facility, payment of $1.3 million on a customer loan for funding of VAT on import in Indonesia, payment of cash distributions to our common and subordinated unitholders of $28.2 million and cash distributions to non-controlling interest of $3.9 million. This was partially offset by receipt of $11.7 million under the revolving credit facility and $1.0 million from Höegh LNG for the indemnification claimed for non-budgeted expenses and losses incurred for technical issues related to 2016 and the first quarter of 2017. 

 

As a result of the foregoing, cash and cash equivalents and restricted cash decreased by $2.9 million for the six months ended June 30, 2018 and increased by $0.3 million for the six months ended June 30, 2017.

 

 23 

 

 

Three Months Ended June 30, 2018 Compared with the Three Months Ended June 30, 2017

 

Net Cash Provided by (Used in) Operating Activities

 

Net cash provided by operating activities was $20.6 million for the three months ended June 30, 2018, an increase of $2.3 million compared with $18.3 million for the three months ended June 30, 2017. Before changes in working capital, cash provided by operating activities was $21.5 million for the three months ended June 30, 2018, an increase of $1.2 million compared to $20.3 million for the three months ended June 30, 2017. The increase was primarily due to increased earnings in the Majority held FRSU segment which was partially offset by the reduction on interest payments on advances to joint ventures and changes in accrued interest expense for the three months ended June 30, 2018 compared with the three months ended June 30, 2017. Changes in working capital reduced net cash provided by operating activities by $0.8 million for the three months ended June 30, 2018, a decrease of $1.3 million from a negative contribution of $2.1 million for the three months ended June 30, 2017.

 

Net Cash Provided by (Used in) Investing Activities

 

Net cash provided by investing activities was $0.9 and $0.4 million for the three months ended June 30, 2018 and 2017, respectively. The increase in net cash provided by investing activities of $0.5 million was primarily the result of cash settlement of working capital adjustment for the Höegh Grace entities of $0.4 million for the three months ended June 30, 2017. For both the three months ended June 30, 2018 and 2017, cash provided by investing activities included receipts of repayment on principal of $0.9 million on the direct financing lease since the PGN FSRU Lampung charter is accounted for as a financial lease. 

 

Net Cash Provided by (Used in) Financing Activities

 

Net cash used in financing activities for the three months ended June 30, 2018 was $30.0 million compared with $19.0 million for the three months ended June 30, 2017.

 

Net cash used in financing activities for the three months ended June 30, 2018 was mainly due to the quarterly repayment of $4.8 million on the Lampung facility, $3.3 million on the Gallant facility and $3.3 million on the Grace facility, repayment of $11.5 million on the revolving credit facility, payment of $1.2 million on a customer loan for funding of VAT on import in Indonesia, payment of cash distributions to our common and subordinated unitholders of $15.0 million and payment of cash distribution to the holders of our Series A preferred units of $2.8 million. This was partially offset by receipt of net proceeds of $0.1 million and $11.7 million for issuance of common and Series A preferred units, respectively, under our ATM program.

 

Net cash used in financing activities for the three months ended June 30, 2017 was mainly due to the quarterly repayment of $4.8 million on the Lampung facility, $3.3 million on the Gallant facility and $3.3 million on the Grace facility, our payment of cash distributions to our common and subordinated unitholders of $14.4 million and cash distributions to non-controlling interest of $3.9 million. This was partially offset by receipt of $10.1 million under the revolving credit facility and $0.6 million from Höegh LNG for the indemnification claimed for non-budgeted expenses and losses incurred for technical issues related to the first quarter of 2017.

 

As a result of the foregoing, cash and cash equivalents and restricted cash decreased by $8.4 million and $0.3 million for the three months ended June 30, 2018 and 2017, respectively.

 

Qualitative and Quantitative Disclosures About Market Risk

 

We are exposed to various market risks, including foreign exchange risk, interest rate risk, credit risk and concentrations of risk.

 

 24 

 

 

Foreign Exchange Risk

 

All financing, interest expenses from financing and most of the Partnership’s revenue and expenditures for vessel improvements are denominated in U.S. dollars. Certain operating expenses can be denominated in currencies other than U.S. dollars. For the three and six months ended June 30, 2018, and 2017, no derivative financial instruments have been used to manage foreign exchange risk. The Gallant time charter provides that revenues are denominated 90% in U.S. dollars and 10% in Egyptian pounds, or as otherwise agreed between the parties from time to time. For the three and six months ended June 30, 2018, the revenues from the Höegh Gallant were denominated 97% in U.S. dollars and 3% in Egyptian pounds. For the three and six months ended June 30, 2017, the revenues from the Höegh Gallant were denominated 94% in U.S. dollars and 6% in Egyptian pounds. A limited amount of operating expenses was also denominated in Egyptian pounds. Due to restrictions in Egypt, exchangeability between Egyptian pounds and other currencies was more than temporarily lacking or limited during 2017 and the six months ended June 30, 2018. There are two official published rates for Egyptian pounds. The lower rate is applied in the Partnership’s consolidated financial statements for revenues, expenses, assets and liabilities. For all of 2017 and for the three and six months ended June 30, 2018, the Partnership agreed to the payment of monthly revenues denominated in Egyptian pounds that aligned with its working capital needs for the next month which reduced its foreign exchange rate exposure and the risk of loss to a minimal amount in the event Egyptian pound was devalued. 

 

Interest Rate Risk

 

Interest rate swaps are utilized to exchange a receipt of floating interest for a payment of fixed interest to reduce the exposure to interest rate variability on our outstanding floating-rate debt. As of June 30, 2018, there are interest rate swap agreements on the Lampung, Gallant and Grace facilities floating rate debt that are designated as cash flow hedges for accounting purposes. As of June 30, 2018, the following interest rate swap agreements were outstanding: 

 

          Fair        
          value      Fixed 
   Interest      carrying      interest 
   rate  Notional   amount      rate 
(in thousands of U.S. dollars)  index  amount   assets   Term  (1) 
LIBOR-based debt                  
  Lampung interest rate swaps (2)  LIBOR  $145,615    106   Sept 2026   2.8% 
  Gallant interest rate swaps (2)  LIBOR   119,438    918   Sept 2019   1.9% 
  Grace interest rate swaps (2)  LIBOR  $130,688    835   March 2020   2.3% 

 

 

 

1)Excludes the margins paid on the floating-rate debt.
2)All interest rate swaps are U.S. dollar denominated and principal amount reduces quarterly.

 

Credit Risk

 

Credit risk is the exposure to credit loss in the event of non-performance by the counterparties related to cash and cash equivalents, restricted cash, trade receivables and interest rate swap agreements. In order to minimize counterparty risk, bank relationships are established with counterparties with acceptable credit ratings at the time of the transactions. Credit risk related to receivables is limited by performing ongoing credit evaluations of the customers’ financial condition. In addition, Höegh LNG guarantees the payment of the Höegh Gallant time charter hire by EgyptCo under certain circumstances. PGN also guarantees PGN LNG's obligations under the PGN FSRU Lampung time charter. The other time charters do not have parent company guarantees.

 

 25 

 

 

Concentrations of Risk

 

Financial instruments, which potentially subject the Partnership to significant concentrations of credit risk, consist principally of cash and cash equivalents, restricted cash, trade receivables and derivative contracts (interest rate swaps). The maximum exposure to loss due to credit risk is the book value at the balance sheet date. The Partnership does not have a policy of requiring collateral or security. Cash and cash equivalents and restricted cash are placed with qualified financial institutions. Periodic evaluations are performed of the relative credit standing of those financial institutions. In addition, exposure is limited by diversifying among counterparties. There are three charterers so there is a concentration of risk related to trade receivables. Credit risk related to trade receivables is limited by performing ongoing credit evaluations of the customer’s financial condition. In addition, Höegh LNG guarantees the payment of the Höegh Gallant time charter hire by EgyptCo under certain circumstances. No impairment loss was recorded for the three and six months ended June 30, 2018 and 2017 and the year ended December 31, 2017. While the maximum exposure to loss due to credit risk is the book value of trade receivables at the balance sheet date, should any of the time charters for the PGN FSRU Lampung, the Höegh Gallant or the Höegh Grace terminate prematurely, there could be delays in obtaining a new time charter and the rates could be lower depending upon the prevailing market conditions.

  

Non-GAAP Financial Measure

 

Segment EBITDA. EBITDA is defined as earnings before interest, depreciation and amortization and taxes. Segment EBITDA is defined as earnings before interest, depreciation and amortization, taxes and other financial items less non-controlling interest in Segment EBITDA. Other financial items consist of gains and losses on derivative instruments and other items, net (including foreign exchange gains and losses and withholding tax on interest expenses). Segment EBITDA is used as a supplemental financial measure by management and external users of financial statements, such as the Partnership's lenders, to assess its financial and operating performance. The Partnership believes that Segment EBITDA assists its management and investors by increasing the comparability of its performance from period to period and against the performance of other companies in the industry that provide Segment EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, depreciation and amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. The Partnership believes that including Segment EBITDA as a financial and operating measure benefits investors in (a) selecting between investing in it and other investment alternatives and (b) monitoring its ongoing financial and operational strength in assessing whether to continue to hold common units. Segment EBITDA is a non-GAAP financial measure and should not be considered an alternative to net income, operating income or any other measure of financial performance presented in accordance with U.S. GAAP. Segment EBITDA excludes some, but not all, items that affect net income, and these measures may vary among other companies. Therefore, Segment EBITDA as presented below may not be comparable to similarly titled measures of other companies. The following tables reconcile Segment EBITDA for each of the segments and the Partnership as a whole to net income (loss), the comparable U.S. GAAP financial measure, for the periods presented:

 

   Six months ended June 30, 2018 
       Joint venture                   
   Majority   FSRUs       Total           
   held   (proportional       Segment   Elimin-     Consolidated 
(in thousands of U.S. dollars)  FSRUs   consolidation)   Other   reporting   ations(1)     reporting 
Reconciliation to net income (loss)                                
Net income (loss)  $31,854    14,481    (4,705)   41,630          $41,630  (3)
Interest income   (156)   (99)   (205)   (460)   99  (4)   (361)
Interest expense   12,141    6,690    1,641    20,472    (6,690) (4)   13,782 
Depreciation and amortization   10,536    4,800        15,336    (4,800 (5)   10,536 
Other financial items (2)   249    (9,482)   62    (9,171)   9,482  (6)   311 
Income tax (benefit) expense   3,954        21    3,975           3,975 
Equity in earnings of JVs:
Interest (income) expense, net
                   6,591 (4)   6,591 
Equity in earnings of JVs:
Depreciation and amortization
                   4,800 (5)   4,800 
Equity in earnings of JVs:
Other financial items (2)
                   (9,482) (6)   (9,482)
Segment EBITDA  $58,578    16,390    (3,186)   71,782          $71,782 

 

 25 

 

  

   Six months ended June 30, 2017 
       Joint venture                   
   Majority   FSRUs       Total           
   held   (proportional       Segment   Elimin-     Consolidated 
(in thousands of U.S. dollars)  FSRUs   consolidation)   Other   reporting   ations(1)     reporting 

Reconciliation to net income (loss)

                                
Net income (loss)  $27,099    6,360    (5,058)   28,401          $28,401 (3)
Interest income       (24)   (243)   (267)   24(4)    (243)
Interest expense   13,282    6,987    2,206    22,475    (6,987)(4)     15,488 
Depreciation and
amortization
   10,526    4,916        15,442    (4,916)(5)     10,526 
Other financial items (2)   1,291    (1,693)   23    (379)   1,693(6)     1,314 
Income tax (benefit)
expense
   3,797            3,797           3,797 
Equity in earnings of JVs:
Interest (income) expense, net
                   6,963(4)    6,963 
Equity in earnings of JVs:
Depreciation and amortization
                   4,916(5)    4,916 
Equity in earnings of JVs:
Other financial items (2)
                   (1,693)(6)    (1,693)
Non-controlling interest in
segment EBITDA
   (10,417)             (10,417)          (10,417)
Segment EBITDA   $45,578    16,546    (3,072)   59,052           $59,052 

 

   Three months ended June 30, 2018 
       Joint venture                   
   Majority   FSRUs       Total           
   held   (proportional       Segment   Elimin-     Consolidated 
(in thousands of U.S. dollars)  FSRUs   consolidation)   Other   reporting   ations(1)     reporting 
Reconciliation to net income (loss)                                
Net income (loss)  $16,819    5,111    (1,986)   19,944          $19,944 (3)
Interest income   (76)   (59)   (98)   (233)   59 (4)   (174)
Interest expense   6,075    3,383    843    10,301    (3,383) (4)   6,918 
Depreciation and amortization   5,268    2,399        7,667    (2,399) (5)   5,268 
Other financial items (2)   296    (2,967)   40    (2,631)   2,967 (6)   336 
Income tax (benefit) expense   1,845        21    1,866           1,866 
Equity in earnings of JVs:
Interest (income) expense, net
                   3,324 (4)   3,324 
Equity in earnings of JVs: Depreciation and amortization                   2,399 (5)   2,399 
Equity in earnings of JVs:
Other financial items (2)
                   (2,967) (6)   (2,967)
Segment EBITDA  $30,227    7,867    (1,180)   36,914          $36,914 

 

 26 

 

  

   Three months ended June 30, 2017 
       Joint venture                   
   Majority   FSRUs       Total           
   held   (proportional       Segment   Elimin-     Consolidated 
(in thousands of U.S. dollars)  FSRUs   consolidation)   Other   reporting   ations(1)     reporting 
Reconciliation to net income (loss)                                
Net income (loss)  $13,094    1,551    (2,433)   12,212          $12,212 (3)
Interest income       (13)   (113)   (126)   13 (4)   (113)
Interest expense   6,615    3,442    1,137    11,194    (3,442) (4)   7,752 
Depreciation and amortization   5,263    2,476        7,739    (2,476) (5)   5,263 
Other financial items (2)   1,166    785    9    1,960    (785) (6)   1,175 
Income tax (benefit) expense   2,042            2,042           2,042 
Equity in earnings of JVs:
Interest (income) expense, net
                   3,429 (4)   3,429 
Equity in earnings of JVs:
Depreciation and amortization
                   2,476 (5)   2,476 
Equity in earnings of JVs:
Other financial items (2)
                   785 (6)   785 
Non-controlling interest in segment EBITDA   (5,423)             (5,423)          (5,423)
Segment EBITDA  $22,757    8,241    (1,400)   29,598          $29,598 

 

 

 

(1)Eliminations reverse each of the income statement reconciling line items of the proportional amounts for Joint venture FSRUs that are reflected in the consolidated net income for the Partnership's share of the Joint venture FSRUs net income (loss) on the Equity in earnings (loss) of joint ventures line item in the consolidated income statement. Separate adjustments from the consolidated net income to Segment EBITDA for the Partnership's share of the Joint venture FSRUs are included in the reconciliation lines starting with “Equity in earnings of JVs.

 

(2)Other financial items consist of gains and losses on derivative instruments and other items, net including foreign exchange gains or losses and withholding tax on interest expense.

 

(3)There is no adjustment between net income for Total Segment reporting and the Consolidated reporting because the net income under the proportional consolidation and equity method of accounting is the same.

 

(4)Interest income and interest expense for the Joint venture FSRUs is eliminated from the Total Segment reporting to agree to the interest income and interest expense in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Interest (income) expense for the Consolidated reporting.

 

(5)Depreciation and amortization for the Joint venture FSRUs is eliminated from the Total Segment reporting to agree to the depreciation and amortization in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Depreciation and amortization for the Consolidated reporting.

 

(6)Other financial items for the Joint venture FSRUs is eliminated from the Segment reporting to agree to the Other financial items in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Other financial items for the Consolidated reporting.

 

 27 

 

  

FORWARD LOOKING STATEMENTS

 

This report contains certain forward-looking statements concerning future events and our operations, performance and financial condition. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” “plan,” “intend” or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to:

 

  · market trends for FSRUs and LNG carriers, including hire rates and factors affecting supply and demand;

 

  · our distribution policy and ability to make cash distributions on our units or any increases in the quarterly distributions on our common units;

 

  · restrictions in our debt agreements and pursuant to local laws on our joint ventures' and our subsidiaries' ability to make distributions;

 

  · our ability to settle or resolve the boil-off claim for the joint ventures, including the estimated amount thereof;

 

  · the ability of Höegh LNG to satisfy its indemnification obligations to the Partnership, including in relation to the boil-off claim;

 

  · our ability to purchase additional vessels from Höegh LNG in the future;

 

  · our ability to integrate and realize the anticipated benefits from acquisitions;

 

  · our anticipated growth strategies; including the acquisition of vessels;

 

  · our anticipated receipt of dividends and repayment of indebtedness from subsidiaries and joint ventures;

 

  · effects of volatility in global prices for crude oil and natural gas;

 

  · the effect of the worldwide economic environment;

 

  · turmoil in the global financial markets;

 

  · fluctuations in currencies and interest rates;

 

  · general market conditions, including fluctuations in hire rates and vessel values;

 

  · changes in our operating expenses, including drydocking and insurance costs;

 

  · our ability to comply with financing agreements and the expected effect of restrictions and covenants in such agreements;

 

  · the financial condition liquidity and creditworthiness of our existing or future customers and their ability to satisfy their obligations under our contracts;

 

  · our ability to replace existing borrowings, including the Gallant/Grace facility, make additional borrowings and to access public equity and debt capital markets;

 

  · planned capital expenditures and availability of capital resources to fund capital expenditures;

 

  · the exercise of purchase options by our customers;

 

  · our ability to perform under our contracts and maintain long-term relationships with our customers;

 

 28 

 

 

  · our ability to leverage Höegh LNG's relationships and reputation in the shipping industry;

  

  · our continued ability to enter into long-term, fixed-rate charters and the hire rate thereof;

 

  · the operating performance of our vessels and any related claims by Total S.A. or other customers;

 

  · our ability to maximize the use of our vessels, including the redeployment or disposition of vessels no longer under long-term charters;

 

  · our ability to compete successfully for future chartering and newbuilding opportunities;

 

  · timely acceptance of our vessels by their charterers;

 

  · termination dates and extensions of charters;

 

  · the cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards, as well as standard regulations imposed by our charterers applicable to our business;

 

  · demand in the FSRU sector or the LNG shipping sector in general and the demand for our vessels in particular;

 

  · availability of skilled labor, vessel crews and management;
     
  · the ability of Höegh LNG to meet its financial obligations to us, including its indemnity, guarantee and option obligations;

 

  · our incremental general and administrative expenses as a publicly traded limited partnership and our fees and expenses payable under our ship management agreements, the technical information and services agreement and the administrative services agreements;

 

  · the anticipated taxation of the Partnership, its subsidiaries and affiliates and distributions to its unitholders;

 

  · estimated future maintenance and replacement capital expenditures;

 

  · our ability to retain key employees;

 

  · customers' increasing emphasis on environmental and safety concerns;

 

  · potential liability from any pending or future litigation;

 

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

 

  · future sales of our common units and Series A preferred units in the public market;

 

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

 

  · our ability to successfully remediate any material weaknesses in our internal control over financial reporting and our disclosure controls and procedures; and

 

  · other factors listed from time to time in the reports and other documents that we file with the SEC, including our Annual Report on Form 20-F for the year ended December 31, 2017 and subsequent quarterly reports on Form 6-K.

 

All forward-looking statements included in this report are made only as of the date of this report. New factors emerge from time to time, and it is not possible for the Partnership to predict all of these factors. Further, the Partnership cannot assess the impact of each such factor on its 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. The Partnership does not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

 

 29 

 

 

HÖEGH LNG PARTNERS LP

INDEX TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Table of Contents

 

  Page
   
Unaudited Condensed Interim Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017 F-2
Unaudited Condensed Interim Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 F-3
Unaudited Condensed Interim Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 F-4
Unaudited Condensed Interim Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2018 and the Year Ended December 31, 2017 F-6
Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2018 and 2017 F-8
Notes to Unaudited Condensed Interim Consolidated Financial Statements F-10

 

 F-1 

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF INCOME

(in thousands of U.S. dollars, except per unit amounts)

 

      Three months ended   Six months ended 
      June 30,   June 30, 
   Notes  2018   2017   2018   2017 
REVENUES                       
Time charter revenues  4,5  $35,510    35,024    70,395   $70,101 
Other revenue      1,100        1,100     
Total revenues  4,5   36,610    35,024    71,495    70,101 
OPERATING EXPENSES                       
Vessel operating expenses      (5,462)   (5,628)   (11,215)   (11,805)
Construction contract expenses          (151)       (151)
Administrative expenses      (2,101)   (2,465)   (4,888)   (5,222)
Depreciation and amortization      (5,268)   (5,263)   (10,536)   (10,526)
Total operating expenses      (12,831)   (13,507)   (26,639)   (27,704)
Equity in earnings (losses) of joint ventures  4,10   5,111    1,551    14,481    6,360 
Operating income (loss)  4   28,890    23,068    59,337    48,757 
FINANCIAL INCOME (EXPENSE), NET                       
Interest income      174    113    361    243 
Interest expense      (6,918)   (7,752)   (13,782)   (15,488)
Gain (loss) on derivative instruments      544    247    1,175    910 
Other items, net      (880)   (1,422)   (1,486)   (2,224)
Total financial income (expense), net  6   (7,080)   (8,814)   (13,732)   (16,559)
Income (loss) before tax      21,810    14,254    45,605    32,198 
Income tax expense  7   (1,866)   (2,042)   (3,975)   (3,797)
Net income (loss)  4  $19,944    12,212    41,630   $28,401 
Non-controlling interest in net income          2,812        5,556 
Preferred unitholders' interest in net income      3,003        5,663     
Limited partners' interest in net income (loss)     $16,941    9,400    35,967   $22,845 
                        
Earnings per unit                       
Common unit public (basic and diluted)  18  $0.50   $0.28   $1.07   $0.68 
Common unit Höegh LNG (basic and diluted)  18  $0.53   $0.30   $1.11   $0.71 
Subordinated unit (basic and diluted)  18  $0.53   $0.30   $1.11   $0.71 

 

The accompanying notes are an integral part of the unaudited condensed interim consolidated financial statements.

 

 F-2 

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of U.S. dollars)

 

      Three months ended   Six months ended 
      June 30,   June 30, 
   Notes  2018   2017   2018   2017 
Net income (loss)     $19,944    12,212    41,630   $28,401 
Unrealized gains (losses) on cash flow hedge  13   745    (1,029)   4,572    111 
Income tax benefit (expense)  13   (79)   (83)   (165)   (175)
Other comprehensive income (loss)      666    (1,112)   4,407    (64)
Comprehensive income (loss)     $20,610    11,100    46,037   $28,337 
Non-controlling interest in comprehensive income          2,640        5,541 
Preferred unitholders' interest in net income      3,003        5,663     
Limited partners' interest in comprehensive income (loss)     $17,607    8,460    40,374   $22,796 

 

The accompanying notes are an integral part of the unaudited condensed interim consolidated financial statements.

 

 F-3 

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
BALANCE SHEETS

(in thousands of U.S. dollars)

 

      As of 
      June 30,   December 31, 
   Notes  2018   2017 
ASSETS             
Current assets             
Cash and cash equivalents  12  $20,980   $22,679 
Restricted cash  12   5,958    6,962 
Trade receivables      4,425    7,563 
Amounts due from affiliates  11,12   4,235    4,286 
Inventory      649    668 
Current portion of net investment in direct financing lease      3,986    3,806 
Derivative instruments  12,13   973     
Prepaid expenses and other receivables      2,131    462 
Total current assets      43,337    46,426 
Long-term assets             
Restricted cash  12   13,404    13,640 
Vessels, net of accumulated depreciation      668,648    679,041 
Other equipment      561    604 
Intangibles and goodwill      22,570    24,370 
Advances to joint ventures  8,12   3,397    3,263 
Net investment in direct financing lease      280,976    282,820 
Long-term deferred tax asset  7   139    204 
Derivative instruments  12,13   1,217    228 
Other long-term assets      5,838    8,363 
Total long-term assets      996,750    1,012,533 
Total assets     $1,040,087   $1,058,959 

 

The accompanying notes are an integral part of the unaudited condensed interim consolidated financial statements.

 

 F-4 

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
BALANCE SHEETS

(in thousands of U.S. dollars)

 

       As of 
       June 30,   December 31, 
   Notes   2018   2017 
LIABILITIES AND EQUITY              
Current liabilities              
Current portion of long-term debt  9,12   $45,458   $45,458 
Trade payables       622    381 
Amounts due to owners and affiliates  11,12    559    1,417 
Value added and withholding tax liability       1,013    1,511 
Derivative instruments  12,13    331    2,015 
Accrued liabilities and other payables       9,037    13,042 
Total current liabilities       57,020    63,824 
Long-term liabilities              
Accumulated losses of joint ventures  10    6,265    20,746 
Long-term debt  9,12    412,479    434,845 
Revolving credit facility due to owners and affiliates  11,12    45,292    51,832 
Derivative instruments  12,13        2,102 
Long-term tax liability  7    786     
Long-term deferred tax liability  7    7,403    5,158 
Other long-term liabilities       2,673    5,793 
Total long-term liabilities       474,898    520,476 
Total liabilities       531,918    584,300 
EQUITY              
8.75% Series A Preferred Units       132,532    113,404 
Common units public       323,989    317,149 
Common units Höegh LNG       6,945    6,513 
Subordinated units       43,044    40,341 
Accumulated other comprehensive income (loss)       1,659    (2,748)
Total partners' capital       508,169    474,659 
Total equity       508,169    474,659 
Total liabilities and equity      $1,040,087   $1,058,959 

 

The accompanying notes are an integral part of the unaudited condensed interim consolidated financial statements.

 

 F-5 

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(in thousands of U.S. dollars)

 

   Partners’ Capital         
   8.75%
Series A
Preferred
Units
   Common
Units
Public
   Common
Units
Höegh
LNG
   Subordinated
Units
   Accumulated
Other
Comprehensive
Income
   Non-
controlling
interest
   Total
Equity
 
Consolidated balance as of December 31, 2016  $    321,091    6,849    42,586    (5,736)      $364,790 
Non-controlling interest acquired from the purchase of the Höegh Grace entities                       88,561    88,561 
Net income   2,480    24,217    3,055    19,030        10,408    59,190 
Cash distributions to unitholders       (30,039)   (3,741)   (23,257)           (57,037)
Cash distributions to non-controlling interest                       (9,457)   (9,457)
Cash contribution from Höegh LNG