Höegh LNG Partners LP Reports Preliminary Financial Results for the Quarter Ended June 30, 2015

HAMILTON, Bermuda, Aug. 27, 2015 /PRNewswire/ -- Höegh LNG Partners LP (NYSE: HMLP) (the "Partnership") today reported its preliminary financial results for the quarter ended June 30, 2015. As previously announced, the Partnership is reviewing its accounting treatment for certain Indonesian withholding and value added tax payments for certain historical periods. As a result of its review to date, the Partnership believes that it may be necessary to restate its financial statements for the current and prior periods in order to adjust its accounting treatment for such withholding and value added tax payments. The preliminary results announced today and the data for the comparable historical period do not reflect the impact of these potential adjustments. It is possible that additional adjustments to the Partnership's financial statements may be identified as the Partnership completes its review. To the extent the Partnership is required to restate its financial statements, it will file amendments in due course.

Highlights

• Reported total time charter revenues of $11.1 million for the second quarter of 2015 compared to $7.5 million of construction contract revenues for the second quarter of 2014
• Generated operating income of $18.7 million and net income of $16.3 million for the second quarter of 2015 compared to an operating loss of $5.2 million and a net loss of $7.3 million for the second quarter of 2014; operating income and net income were impacted by unrealized gains and losses on derivative instruments on the Partnership's share of equity in earnings of joint ventures in the second quarter of 2015 and 2014
• Generated Adjusted EBITDA¹ of $16.0 million for the second quarter of 2015 compared to $6.1 million for the second quarter of 2014
• On August 12, 2015, announced that the Partnership has agreed to acquire the entity that owns the floating storage and regasification unit ("FSRU") Höegh Gallant for a purchase price of $370 million from a subsidiary of Höegh LNG Holdings Ltd. ("Höegh LNG"), subject to certain post-closing purchase price adjustments
• On August 14, 2015, paid a $0.3375 per unit distribution with respect to the second quarter of 2015, equivalent to $1.35 per unit on an annual basis

Richard Tyrrell, Chief Executive Officer and Chief Financial Officer stated: "The Partnership received full hire for all three FSRUs in in the second quarter. The GDF Suez Neptune completed a scheduled modification and dry-docking in the second quarter while the GDF Suez Cape Ann and PGN FSRU Lampung continue to serve in China and Indonesia, respectively. I am pleased the Partnership announced the dropdown of the FSRU Höegh Gallant. The expected completion of the Höegh Gallant transaction is in the third quarter. I look forward to closing this transaction and the growth in distributions it is expected to deliver."

Financial Results Overview

The Partnership reported a net income for the three months ended June 30, 2015 of $16.3 million, an increase of $23.6 million from a net loss of $7.3 million for the three months ended June 30, 2014. The net income (loss) for both periods was impacted by the unrealized gains (losses) on derivative instruments mainly on the Partnership's share of equity in earnings of joint ventures. Excluding these unrealized gains (losses) on derivative instruments, net income for the three months ended June 30, 2015 was $6.4 million, an increase of $10.0 million from a net loss of $3.6 million for the three months June 30, 2014. Income tax expense was $0.2 million for the three months ended June 30, 2015 compared to an income tax benefit of $0.2 million for the three months ended June 30, 2014.

All FSRUs were onhire for the entire second quarter of 2015. During the second quarter of 2014, the PGN FSRU Lampung was still under construction and had no time charter revenues. GDF Suez Neptune and GDF Suez Cape Ann were fully utilized during the second quarter of 2014.

Operating income for the three months ended June 30, 2015 was $18.7 million, an increase of $23.9 million from an operating loss of $5.2 million for the three months ended June 30, 2014. Operating income was also impacted by the unrealized gains (losses) on derivative instruments on the Partnership's share of equity in earnings of joint ventures.

Adjusted EBITDA¹ was $16.0 million for the three months ended June 30, 2015, an increase of $9.9 million from $6.1 million for the three months ended June 30, 2014.

Equity in earnings of joint ventures, which own the vessels GDF Suez Neptune and the GDF Suez Cape Ann, for the three months ended June 30, 2015 was $11.5 million, an increase of $13.6 million from equity in losses of joint ventures of $2.1 million for the three months ended June 30, 2014. The reason for the increase was the Partnership's share of an unrealized gain on derivative financial instruments of the joint ventures for the three months ended June 30, 2015 of $9.9 million compared with an unrealized loss of $3.8 million for the three months ended June 30, 2014. For the three months ended June 30, 2015, the Partnership's share of operating income in the joint ventures was $5.7 million compared with $5.9 million for the three months ended June 30, 2014.

¹ Adjusted EBITDA is a non-GAAP financial measure used by investors to measure financial and operating performance. Please see Appendix A for a reconciliation of Adjusted EBITDA and Segment EBITDA to net income, the most directly comparable GAAP financial measure.

Financing and Liquidity

As of June 30, 2015, the Partnership had cash and cash equivalents of $29.4 million and an undrawn sponsor credit facility of $85 million. During the second quarter of 2015, the Partnership received approximately $0.6 million in a cash payment from Höegh LNG for indemnification of prior period non-budgeted expenses related to the PGN FSRU Lampung pursuant to the omnibus agreement Höegh LNG entered into with the Partnership at the time of its initial public offering. After June 30, 2015, the Partnership received an additional cash payment from Höegh LNG for indemnification of current period non-budgeted expenses of approximately $0.6 million. The cash payment for the indemnification received in the second quarter was recorded as a contribution to equity as of June 30, 2015. The cash payment for the indemnification received in the third quarter will be recorded as a contribution to equity for the third quarter of 2015. Current restricted cash for operating obligations of the PGN FSRU Lampung was $9.5 million and long-term restricted cash required under the credit facility related to the PGN FSRU Lampung (the "Lampung Facility") was $15.1 million as of June 30, 2015. The Partnership has an interest-bearing demand note due from Höegh LNG of $140.0 million which will be used as part of the consideration for the acquisition of the Höegh Gallant.

During the second quarter of 2015, the Partnership made a quarterly repayment of $4.7 million on the Lampung facility. The Partnership's total long-term debt was $202.8 million as of June 30, 2015.

As of June 30, 2015, the Partnership had outstanding interest rate swap agreements for a total notional amount of $202.8 million to hedge against the interest rate risks of its long-term debt under the Lampung facility. The Partnership applies hedge accounting for derivative instruments. The Partnership receives interest based on three month US dollar LIBOR and pays a fixed rate of 2.8%. The carrying value of the liability for derivative financial instruments was $8.4 million as of June 30, 2015. The effective portion of the changes in fair value of the interest rate swaps are recorded in other comprehensive income. The loss on derivative instruments of approximately $8 thousand for the three months ended June 30, 2015 was due to amortization of the amount excluded from hedge effectiveness related to the Lampung facility. There was no comparable gain or loss on derivative instruments for the three months ended June 30, 2014.

On August 14, 2015, the Partnership paid a cash distribution of $0.3375 per unit with respect to the second quarter of 2015, equivalent to $1.35 per unit on an annualized basis. The distribution totaled $8.9 million.

Outlook

Announced Acquisition of Höegh Gallant

On August 12, 2015, the Partnership announced that it had agreed to acquire the entity that owns the FSRU Höegh Gallant for a purchase price of $370 million (including debt) from a subsidiary of Höegh LNG, subject to certain post-closing purchase price adjustments. The existing debt related to the Höegh Gallant of approximately $183 million and the associated interest rate swaps and will continue to be outstanding. The Partnership will finance the purchase price through the cancellation of a $140 million demand note from Höegh LNG and the issuance of a seller's credit of $47 million due in 18 months to a subsidiary of Höegh LNG. The seller's credit will carry an interest rate of 8% per annum. The transaction is expected to be completed by the end of September 2015 and is subject to customary closing conditions.

The Höegh Gallant was constructed by Hyundai Heavy Industries Co., Ltd. ("HHI") and was delivered to Höegh LNG in November 2014. In April 2015, the Höegh Gallant began operating under a charter that expires in 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") that expires in April 2020. Additionally, Höegh LNG and the Partnership have entered into an option agreement pursuant to which the Partnership has the right to cause Höegh LNG to charter the vessel 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.

The Partnership estimates that the purchase of the Höegh Gallant will generate annual contracted revenues, net of operating expenses and taxes, of approximately $39 million to $41 million with respect to the period of the EgyptCo charter.

The Board of Directors of the Partnership (the "Board") and the Conflicts Committee thereof, as well as the Board of Directors of Höegh LNG, have approved the transaction. To assist it in its evaluation of the transaction, the Conflicts Committee retained an independent financial advisor.

As a result of the transaction, management of the Partnership intends to recommend to the Board that it consider an increase to $0.4125 per unit in the Partnership's quarterly cash distribution, an increase of approximately 22% from the current quarterly distribution of $0.3375 per unit, which would become effective for the distribution with respect to the quarter ending December 31, 2015. Any increased distribution would be conditional upon, among other things, the closing of the transaction, the approval by the Board and the absence of any material adverse developments that would make such an increase inadvisable.

FSRU Independence Update 

Pursuant to the omnibus agreement, the Partnership has a right to purchase from Höegh LNG all or a portion of its interests in the FSRU Independence within 24 months after the acceptance of the vessel by her charterer, subject to reaching an agreement with Höegh LNG regarding the purchase price and other terms of the transaction in accordance with the provisions of the omnibus agreement. The Partnership and Höegh LNG continue to await the consent of the charterer as to the transaction. No assurance at the current time can be given regarding the timing of such consent or consummation or timing of the Independence transaction or the terms on which such transaction will be made.

Potential Future Opportunities

Pursuant to the omnibus agreement, Höegh LNG is obligated to offer to the Partnership any FSRU or LNG carrier operating under a charter of five or more years.

Höegh LNG has entered into the following agreements with respect to its newbuilding FSRUs:

• On November 1, 2014, Höegh LNG signed a contract for a minimum term of ten years with Sociedad Portuaria El Cayao S.A. E.S.P. ("SPEC") to provide an FSRU (the Höegh Grace) to service a new LNG import terminal in Colombia.  The contract is expected to commence in the middle of 2016.
• On May 26, 2015, Höegh LNG signed a contract for a term of twenty years with Octopus LNG SpA ("Octopus") to provide an FSRU to service for the Penco-Lirquen LNG import terminal to be located in Concepcion Bay, Chile. The contract is subject to Octopus completing financing and obtaining necessary environmental approvals. Höegh LNG will service the contract with an FSRU from its newbuilding program currently in progress. The contract is expected to commence in the second quarter of 2018. 
• On June 1, 2015, Höegh LNG announced the order of the eighth FSRU from HHI. The FSRU is expected to be delivered in 2018 and is not yet under charter. The shipbuilding agreement with HHI also includes a firm priced option for an additional FSRU with a predefined delivery window. 

There can be no assurance that the Partnership will acquire any vessels from Höegh LNG.

Potential Restatement of Financial Statements / Indemnification 

On August 12, 2015, the Partnership announced that it is reviewing its accounting treatment for certain Indonesian withholding and value added tax payments for the years ended December 31, 2014 and 2013, each quarter within the year ended December 31, 2014, the quarter ended December 31, 2013 and the quarters ended March 31, 2015 and June 30, 2015. As a result of its review to date, the Partnership believes that it may be necessary to restate its financial statements for such periods in order to adjust its accounting treatment for certain Indonesian withholding and value added tax payments. It is possible that additional adjustments to the Partnership's financial statements may be identified as the Partnership completes its review. The Partnership is indemnified by Höegh LNG for all non-budgeted, non-creditable Indonesian value added taxes and non-budgeted Indonesian withholding taxes, and any related impact on cash flow that may arise out of such review. If an indemnification payment is received from Höegh LNG, the amount is expected to be recorded as a contribution to equity. The change, if any, to the accounting treatment for the Indonesia withholding and value added tax payments is not expected to materially affect the Partnership's cash flows, liquidity or distributable cash flow on a prospective basis. The Audit Committee of the Board is discussing the matters related to the potential restatement with Ernst & Young AS, the Partnership's independent registered public accounting firm.

The preliminary results announced today and the data for the comparable historical period do not reflect the impact of these potential restatement adjustments.

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements concerning future events and the Partnership's 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 the Partnership's 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:

• the Partnership's ability to consummate the Höegh Gallant transaction on a timely basis or at all and to integrate and realize the anticipated benefits from the transaction;
• the annual contracted revenues, operating expenses and taxes relating to Höegh Gallant;
• the Partnership's ability to increase distributions to unitholders and the amount of such increase;
• the Partnership's ability to acquire the Independence;
• the timing of the Partnership's restated financial results, if any, for prior and current periods and the effect of any restatements on prior and current period results;
• FSRU and LNG carrier market trends, including hire rates and factors affecting supply and demand;
• the Partnership's anticipated growth strategies;
• the Partnership's anticipated receipt of dividends and repayment of indebtedness from joint ventures;
• 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 the Partnership's operating expenses, including drydocking and insurance costs;
• the Partnership's ability to make cash distributions on its units and the amount of any borrowings that may be necessary to make such distributions;
• the Partnership's ability to comply with financing agreements and the expected effect of restrictions and covenants in such agreements;
• the future financial condition of the Partnership's existing or future customers;
• the Partnership's ability to 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 customers;
• the Partnership's ability to maintain long-term relationships with its customers;
• the Partnership's ability to leverage Höegh LNG's relationships and reputation in the shipping industry;
• the Partnership's ability to purchase vessels from Höegh LNG in the future, including the Höegh Grace or Höegh LNG's other FSRU newbuildings;
• the Partnership's continued ability to enter into long-term, fixed-rate charters;
• the Partnership's ability to maximize the use of its vessels, including the redeployment or disposition of vessels no longer under long-term charters;
• expected pursuit of strategic opportunities, including the acquisition of vessels;
• the Partnership's ability to compete successfully for future chartering and newbuilding opportunities;
• timely acceptance of the Partnership's vessels by their charterers;
• termination dates and extensions of charters;
• the expected cost of, and the Partnership's ability to comply with, governmental regulations and maritime self-regulatory organization standards, as well as standard regulations imposed by its charterers applicable to its business;
• expected demand in the FSRU sector or the LNG shipping sector in general and the demand for the Partnership's vessels in particular;
• availability of skilled labor, vessel crews and management;
• the Partnership's incremental general and administrative expenses as a publicly traded limited partnership and its fees and expenses payable under its ship management agreements, the technical information and services agreement and the administrative services agreements;
• the anticipated taxation of the Partnership and distributions to its unitholders;
• estimated future maintenance and replacement capital expenditures;
• the Partnership's 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 the Partnership's common units in the public market;
• the Partnership's business strategy and other plans and objectives for future operations; and
• other factors listed from time to time in the reports and other documents that the Partnership files with the SEC, including its Annual Report on Form 20-F for the year ended December 31, 2014.

All forward-looking statements included in this press release are made only as of the date of this release. 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.

Media contact:
Richard Tyrrell
Chief Executive Officer and Chief Financial Officer
+44 7919 058830
www.hoeghlngpartners.com

SOURCE Hoegh LNG Partners LP

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http://www.hoeghlngpartners.com

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