Executive Summary / Key Takeaways

• GasLog Partners LP (GLOP-PB) has undergone a significant strategic transformation, focusing on aggressive deleveraging, fleet optimization through asset sales and leasebacks, and securing long-term charters to enhance financial stability and shareholder value.
• The partnership achieved substantial improvements in its balance sheet, reducing net debt to trailing 12 months EBITDA from 4.3x in Q1 2022 to 2.2x in Q1 2023, surpassing its long-term target.
• Operational performance has been robust, with Q1 2023 revenues increasing by 15.9% year-over-year to $99 million and Adjusted EBITDA rising to $76 million, primarily driven by strong term market fixtures.
• GLOP-PB is strategically deploying its fleet, including exploring FSRU conversions and leveraging its Tri-Fuel Diesel Electric (TFDE) vessels, while actively managing its preference unit capital structure to reduce distribution costs.
• The LNG shipping market remains fundamentally strong due to energy security demands and a projected supply deficit, providing a supportive backdrop for GLOP-PB's long-term charter strategy, though spot market volatility and rising interest rates present ongoing considerations.

A Foundation in LNG Transportation Amidst Evolving Energy Dynamics

GasLog Partners LP, incorporated in 2014 and operating as a subsidiary of GasLog Ltd., has established itself as a key player in the global liquefied natural gas (LNG) transportation sector. The company's core business revolves around acquiring, owning, and operating LNG carriers, primarily employing them through a mix of fixed-term charters and, to a lesser extent, spot market engagements. This strategic blend aims to balance stable revenue streams with opportunistic market exposure. The broader industry landscape has been profoundly shaped by geopolitical events, particularly the situation in Ukraine, which has catalyzed heightened energy security concerns in Europe and permanently altered market dynamics. This shift has underscored the critical role of LNG as a flexible and reliable energy source, driving robust demand for LNG shipping services globally.

GLOP-PB's overarching strategy has centered on disciplined capital allocation, aggressive deleveraging, and continuous fleet optimization. This approach is designed to fortify the balance sheet, enhance profitability, and ensure sustainability through market cycles. The company has also demonstrated a commitment to operational efficiency and environmental stewardship, developing plans to improve ship efficiency, reduce emissions, and invest in digital tools to optimize vessel utilization. These initiatives are a direct response to evolving regulatory frameworks such as the EU Emission Trading Scheme (ETS) and FuelEU, which aim to decarbonize worldwide shipping.

While GasLog Partners LP does not highlight a single proprietary "core differentiated technology" in the manner of a unique manufacturing process, its fleet composition and operational focus serve as key differentiators. The company operates modern LNG carriers, including Tri-Fuel Diesel Electric (TFDE) vessels, which offer enhanced fuel efficiency and operational flexibility compared to older steam turbine vessels. This technological advantage contributes to lower operating costs and improved environmental performance, aligning with industry trends and charterer preferences. Furthermore, GLOP-PB's investment in digital tools is aimed at improving the efficient use of its ships, translating into better voyage planning, optimized fuel consumption, and ultimately, stronger financial performance through reduced operational expenditures. The strategic exploration of Floating Storage and Regasification Unit (FSRU) conversions for some of its existing LNG carriers represents another significant technological and strategic differentiator. This initiative allows the company to repurpose aging assets into long-term infrastructure investments, potentially generating stable, high-margin revenue streams and extending the economic life of its fleet. The "so what" for investors is clear: these operational and strategic technological deployments enhance GLOP-PB's competitive moat by improving cost efficiency, increasing asset utilization, and diversifying revenue potential in a capital-intensive industry.

A History of Strategic Transformation and Financial Fortification

GasLog Partners' journey has been marked by a proactive response to market challenges and a clear strategic pivot towards financial strength. Early in its history, the company faced significant non-cash impairment charges on its steam vessels, including $103.98 million in 2021 and $23.92 million in 2020, reflecting the evolving market for older tonnage. This period underscored the need for a more resilient capital structure and a dynamic approach to fleet management.

A pivotal shift began in the third quarter of 2021 with the introduction of specific leverage targets and the initiation of a preference unit repurchase program in August 2021. This marked the beginning of an aggressive deleveraging strategy. As the LNG market became increasingly dynamic in 2022, driven by energy security concerns, GasLog Partners capitalized on strong market conditions. The company secured new charters, including for its TFDE vessels, and strategically de-risked its fleet through asset sales and sale and leaseback transactions. For instance, the sale of the Methane Shirley Elizabeth generated approximately $20 million in net proceeds, while the sale and leaseback of the Methane Heather Sally provided an estimated $17 million in incremental liquidity. These transactions were explicitly designed to enhance liquidity, reduce exposure to aging steam vessels, and align with the company's disciplined capital allocation strategy.

The commitment to deleveraging yielded significant results. By the end of Q2 2022, the net debt to trailing 12 months EBITDA had been reduced to 3.9x, and this figure further improved to 3.3x by Q3 2022 and 2.8x by Q4 2022, falling below the company's long-term target. This progress continued into Q1 2023, with net debt to trailing 12 months EBITDA further decreasing to an impressive 2.2x. This substantial reduction in leverage significantly strengthens the partnership's financial foundation and enhances its capacity to manage future market fluctuations.

A notable corporate development occurred in the first quarter of 2023, when GasLog Partners LP entered into a merger agreement with GasLog Ltd. This transaction, which was unanimously approved by the Partnership Board and Conflict Committee, involved the conversion of outstanding common units (excluding those held by GasLog Ltd. or its affiliates) into the right to receive $5.37 per common unit in cash, along with a special distribution of $3.28 per common unit. While this merger effectively bought out common unitholders, GasLog Partners LP (GLOP-PB) continues to exist as an entity representing preference shares, with management actively discussing their repurchase and redemption schedule.

Robust Financial Performance and Deleveraging Momentum

GasLog Partners has demonstrated strong financial performance, reflecting its successful strategy of securing long-term charters and optimizing its balance sheet. In the first quarter of 2023, revenues increased by 15.9% to $99 million compared to the same period in 2022, primarily driven by a net increase in revenues from term fixtures secured in 2022. Adjusted EBITDA for Q1 2023 rose to $76 million, an increase of approximately $15.4 million from Q1 2022, supported by both higher revenues and a decrease in vessel operating expenses. Adjusted earnings per unit stood at $0.62 for the quarter. This positive trend was consistent throughout 2022. Q4 2022 revenues were $105 million, a 19% increase from Q4 2021, leading to an Adjusted EBITDA of $81 million, up 26% year-over-year. Adjusted earnings per unit in Q4 2022 were $0.74, a 64% increase from Q4 2021. Similarly, Q3 2022 saw revenues of $96 million and Adjusted EBITDA of $73 million, representing 19% and 28% increases, respectively, over Q3 2021.

Operating expenses have been carefully managed. In Q1 2023, daily operating expenses per vessel were $12,640, a decrease of $2.7 million from Q1 2022, largely due to reduced crew costs from nonrecurring COVID-19 measures and a favorable USD exchange rate. However, general and administrative expenses increased by $0.9 million to $5.6 million in Q1 2023, primarily due to $0.8 million in transaction costs related to the merger. Interest expense also rose by $8.6 million in Q1 2023 due to higher base interest rates (LIBOR), despite the significant deleveraging efforts.

The deleveraging strategy has been a cornerstone of GLOP-PB's financial health. Gross debt to total capitalization decreased from 52.7% in Q1 2022 to 46.5% in Q1 2023. The net debt to trailing 12 months EBITDA, a key leverage target, dramatically reduced from 4.3x to 2.2x over the same period, falling below the long-term target. This was significantly aided by strong operating performance and increased cash from strategic vessel sales and sale and leaseback transactions, such as the GasLog Sydney, which repaid $87.8 million of debt and released approximately $49 million of incremental liquidity.

The preference unit repurchase program has also contributed to financial optimization. While no buybacks occurred in Q1 2023 due to a transaction blackout, prior repurchases have resulted in projected annualized savings of about $0.11 per unit, reducing preference unit distributions by approximately $5.7 million per annum. As of March 31, 2023, $87 million in Series B preference units were outstanding and redeemable at par, with Series C and A units redeemable in 2024 and 2027, respectively. The Series B units converted to a floating rate (LIBOR plus 5.839%) in March 2023, increasing their annualized distribution to 10.78% from a fixed 8.2% previously. This shift highlights the sensitivity of preference unit distributions to interest rate fluctuations.

Competitive Positioning in a Dynamic LNG Shipping Market

GasLog Partners LP operates within a competitive global LNG shipping market, vying for contracts against established players such as Teekay LNG Partners LP , Dynagas LNG Partners LP , and Flex LNG Ltd. . GLOP-PB's market positioning is characterized by its focus on securing multi-year charters and maintaining an operationally reliable fleet.

Compared to Teekay LNG Partners LP , which boasts a larger operational scale and diversified geographic exposure, GLOP-PB's more focused fleet may offer greater operational efficiency in specific high-demand routes. GLOP-PB's emphasis on streamlined asset management could lead to lower overhead costs, allowing it to prioritize high-margin contracts. However, Teekay LNG Partners LP (TGP)'s larger scale often enables it to secure more extensive partnerships and potentially exhibit stronger revenue growth trends.

Against Dynagas LNG Partners LP , known for its modern, high-specification vessels, GLOP-PB's fleet of LNG carriers, including its TFDE vessels, compares favorably in terms of reliability and charter duration. GLOP-PB's operational execution and established customer relationships provide a unique value proposition, potentially translating into more consistent performance and stronger cash flow generation in overlapping segments. While Dynagas LNG Partners LP (DLNG)'s modern fleet might offer greater energy efficiency advantages, GLOP-PB's strategic FSRU conversions represent a distinct avenue for asset utilization and long-term revenue.

Flex LNG Ltd. specializes in innovative vessel designs for efficiency and flexibility. While Flex LNG Ltd. may lead in innovation speed and adaptability, GLOP-PB's established presence and focus on stable, long-term charters offer a different kind of competitive advantage. GLOP-PB's operational reliability and commitment to customer-focused strategies can provide greater stability in revenue streams compared to Flex LNG Ltd. (FLNG)'s more flexible but potentially riskier approach.

GLOP-PB's primary competitive advantages lie in its long-term chartering expertise and established relationships with major energy counterparts. These strengths translate into superior pricing power and customer loyalty, ensuring recurring revenue and robust cash flow generation. The company's strategic approach to asset management, including the sale and leaseback of steam vessels, demonstrates an ability to adapt and de-risk its fleet, a critical capability in a market with evolving vessel requirements.

However, GLOP-PB faces vulnerabilities, including potential dependence on specific charter partners and sensitivity to market volatility. While its high fixed-term coverage mitigates spot market fluctuations, a significant portion of its fleet's exposure for the remainder of 2023 is clustered towards the end of the year, a period that can still experience volatility. The high capital requirements for vessel acquisition and stringent regulatory hurdles for international operations act as significant barriers to entry, favoring established players like GLOP-PB by limiting new competition.

Outlook, Guidance, and Future Growth Avenues

The outlook for GasLog Partners LP remains constructive, underpinned by strong fundamentals in the LNG market. Management anticipates Europe will continue to rely heavily on LNG for the foreseeable future, with China also expected to re-enter the market, driving sustained demand. While new LNG projects are fundamentally strong, persistent delays due to inflationary pressures and the rising cost of capital could prolong the LNG supply deficit beyond 2027, creating a favorable environment for existing LNG carriers.

For 2023, GLOP-PB expects its unit operating expenses to average approximately $13,850 per vessel per day, with actual costs sensitive to foreign exchange fluctuations. General and administrative expenses are projected to average around $3,600 per vessel per day. The company has three remaining vessels scheduled for dry-docking in 2023, which will result in a minimum of 30 off-hire revenue days per vessel and an estimated CapEx cost of $15.6 million, including ballast water treatment systems. These costs could increase due to more expensive European gas for dry-docking.

The partnership's strategic focus on long-term charters provides significant revenue visibility. In Q1 2023, nearly 86% of its days were in fixed-term charters, protecting short-term profitability from seasonal downturns. The option renewal from Shell (SHEL) for the GasLog Geneva for five years, starting in September 2023, is expected to add approximately $122 million of EBITDA, further solidifying the contracted revenue backlog.

Beyond traditional chartering, GLOP-PB is actively exploring new growth avenues. The agreement in principle to convert one of its 145,000 cubic steam LNG carriers into an FSRU for the Venice Energy project is a prime example. This conversion is expected to cost in excess of $100 million and take 8 to 10 months, representing a significant investment into long-term infrastructure. Management views such projects favorably, seeing them as a way to utilize aging assets and generate attractive returns, rather than solely pursuing newbuilding orders at currently high prices.

Key Risks and Considerations

Despite a strong market and robust financial performance, GasLog Partners faces several risks. The LNG shipping spot market, while benefiting from long-term demand, can experience significant volatility, as evidenced by the 90% decline in rates from their November 2022 peak into a seasonally weak Q1 2023. The increased prevalence of short trips from the U.S. to Europe has also impacted ton-mile demand. The presence of "relents" (charterers subletting vessels) can disrupt both spot and term markets.

Interest rate increases, such as the floating rate conversion for Series B preference units, directly impact financing costs and preference unit distributions. Delays in new U.S. LNG projects due to inflationary pressures and capital costs could affect future supply-demand balances, though they might also prolong the current supply deficit, benefiting existing tonnage. Furthermore, the substantial LNG carrier order book, with about 12% remaining uncommitted, presents a long-term supply risk that could impact rates once new vessels are delivered, primarily from 2026-2027 onwards. Regulatory changes, such as the EU ETS and FuelEU, while driving efficiency, also introduce new compliance costs and operational complexities.

Conclusion

GasLog Partners LP has successfully navigated a period of significant market volatility and strategic transformation, emerging with a substantially strengthened balance sheet and a clear path for value realization. The aggressive deleveraging, evidenced by the dramatic reduction in net debt to trailing 12 months EBITDA, coupled with a disciplined approach to fleet optimization through strategic asset sales and leasebacks, has positioned the company for enhanced financial resilience. This robust financial health provides a solid foundation for its preference shares (GLOP-PB), supporting their distributions and future redemption prospects.

The company's strategic emphasis on long-term charters, complemented by its operational efficiency initiatives and the strategic deployment of its TFDE vessels and FSRU conversion projects, allows it to capitalize on the fundamentally strong LNG market driven by global energy security demands. While challenges such as spot market volatility, rising interest rates, and the long-term impact of a growing order book persist, GLOP-PB's proactive management of its capital structure and its strategic positioning in a high-demand industry underscore a compelling investment thesis for preference unitholders seeking stable income and a well-managed entity. The ongoing commitment to reducing all-in breakeven levels and enhancing free cash flow generation further solidifies the long-term outlook for GasLog Partners LP.