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, 2019

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.

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).

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).

HÖEGH LNG PARTNERS LP

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

Table of Contents

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 and six months ended June 30, 2019 and 2018. 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 our operating company 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 Cape Ann, respectively. References in this Annual Report to “Global LNG Supply” refer to Global LNG Supply S.A.S., a subsidiary of Total S.A. (“Total”). References in this Report to “PGN LNG” refer to PT PGN LNG Indonesia, a subsidiary of PT Perusahaan Gas Negara (Persero) Tbk (“PGN”), a subsidiary of PT Pertamina. 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, 2019 and for the periods ended June 30, 2019 and 2018 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 10, 2019 (our “2018 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

Our results of operations

Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018

Time Charter Revenues. The following table sets forth details of our time charter revenues for the six months ended June 30, 2019 and 2018:

Time charter revenues for the six months ended June 30, 2019 were $69.9 million, a decrease of $0.5 million from $70.4 million for the six months ended June 30, 2018. The decrease was mainly due to lower time charter revenue for the Höegh Gallant which was partially offset by higher revenues for the Höegh Grace for the six months ended June 30, 2019. During the second quarter of 2019, the Höegh Gallant had a scheduled drydock for which it was off-hire and had reduced hire to cover certain payments to the charterer for LNG consumption related to the drydock. For the Höegh Gallant, the reduction in revenues was equivalent to approximately 16 days of off-hire due to scheduled drydock for the six months ended June 30, 2019 compared with 10 days of off-hire for scheduled maintenance for the six months ended June 30, 2018. Time charter revenues for the PGN FSRU Lampung were at the same level for the six months ended June 30, 2019 and 2018. The increase in revenues for the Höegh Grace related to higher reimbursable costs during the period.

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, 2019, we adopted the revised guidance in the new accounting standard, Leases, which did not change the timing or amount of lease revenue recognized but requires additional disclosures. Refer to notes 2 and 4 in the unaudited condensed interim consolidated financial statements.

Other revenue. The following table sets forth details of our other revenue for the six months ended June 30, 2019 and 2018:

Other revenue for the six months ended June 30, 2019 and 2018 consists of insurance proceeds received for a claim related to the PGN FSRU Lampung's warranty work from prior periods.

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the six months ended June 30, 2019 and 2018:

Vessel operating expenses for the six months ended June 30, 2019 were $15.0 million, an increase of $3.8 million from $11.2 million for the six months ended June 30, 2018. The higher expenses mainly reflected an increase in maintenance expense of approximately $3.0 million included in vessel operating expenses principally for the Höegh Gallant but also for the PGN FSRU Lampung. During the scheduled drydock of the Höegh Gallant and the on-water survey of the PGN FSRU Lampung, the opportunity was utilized to accelerate the timing of as many maintenance procedures as possible. Performing routine maintenance during the drydock reduces the risk of service interruption or off-hire in subsequent periods. The remaining increase was due to higher ongoing vessel operating expenses, in part, due to lower levels of purchasing during the six months ended June 30, 2018.

Administrative Expenses. The following table sets forth details of our administrative expenses for the six months ended June 30, 2019 and 2018: 

Administrative expenses for the six months ended June 30, 2019 were $4.8 million, a decrease of $0.1 million from $4.9 million for the six months ended June 30, 2018. The decrease reflects lower administrative expenses for partnership expenses.

Depreciation and Amortization. The following table sets forth details of our depreciation and amortization for the six months ended June 30, 2019 and 2018:

Depreciation and amortization for the six months ended June 30, 2019 were $10.9 million, an increase of $0.4 million from $10.5 million for the six months ended June 30, 2018. In the second quarter of 2019, a drydock was completed for the Höegh Gallant. As a result, the remaining depreciation for the drydock component of the vessel was expensed.  

Total Operating Expenses. The following table sets forth details of our total operating expenses for the six months ended June 30, 2019 and 2018:

Total operating expenses were $30.7 million for the six months ended June 30, 2019, an increase of $4.1 million from $26.6 million in the six months ended June 30, 2018. The increase is a result of the higher vessel operating expenses and depreciation mainly due to maintenance performed during the drydock for the Höegh Gallant and the on-water class renewal survey for the PGN FSRU Lampung.

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, 2019 and 2018:

Equity in losses of joint ventures for the six months ended June 30, 2019 was $1.2 million, a decrease of $15.7 million from equity in earnings of joint ventures of $14.5 million for the six months ended June 30, 2018. Unrealized gains and losses on derivative instruments in our joint ventures significantly impacted the equity in earnings and losses of joint ventures for the six months ended June 30, 2019 and 2018. 

Excluding the unrealized loss on derivative instruments for the six months ended June 30, 2019 and the unrealized gain on derivative instruments for the six months ended June 30, 2018, the equity in earnings of joint ventures would have been $6.0 million for the six months ended June 30, 2019, an increase of $1.0 million from $5.0 million for the six months ended June 30, 2018.

Our share of our joint ventures’ operating income was $12.0 million for the six months ended June 30, 2019, compared with $11.6 million for the six months ended June 30, 2018. Our share of other financial expense, net, principally consisting of interest expense, was $6.0 million for the six months ended June 30, 2019, a decrease of $0.6 million from of $6.6 million for the six months ended June 30, 2018. The reduction was mainly due to lower interest expense due to repayment of principal on debt between the two periods.

Our share of unrealized loss on derivative instruments was $7.2 million for the six months ended June 30, 2019, a decrease of $16.7 million from an unrealized gain of $9.5 million for the six months ended June 30, 2018.

There was no accrued income tax expense for the six months ended June 30, 2019 and 2018. Our joint ventures did not pay any dividends for the six months ended June 30, 2019 and 2018.

Operating Income (Loss). The following table sets forth details of our operating income for the six months ended June 30, 2019 and 2018:

Operating income for the six months ended June 30, 2019 was $38.0 million, a decrease of $21.3 million from operating income of $59.3 million for the six months ended June 30, 2018. Excluding the impact of the unrealized gains (losses) on derivatives impacting the equity in earnings (losses) of joint ventures for the six months ended June 30, 2019 and 2018, operating income for the six months ended June 30, 2019 would have been $45.2 million, a decrease of $4.7 million from $49.9 million for the six months ended June 30, 2018. Excluding the impact of the unrealized gains (losses) on derivatives, the decrease for the six months ended June 30, 2019 is primarily due to lower time charter revenue as a result of off-hire related to the drydock for the Höegh Gallant, lower other revenue and higher vessel operating expenses as a result of the maintenance performed for the Höegh Gallant and the PGN FSRU Lampung.

Interest Income. The following table sets forth details of our interest income for the six months ended June 30, 2019 and 2018:

Interest income for the six months ended June 30, 2019 was $0.5 million, an increase of $0.1 million from interest income of $0.4 million for the six months ended June 30, 2018. Interest income is mainly related to interest on cash balances and accrued interest on the advances to our joint ventures for the six months ended June 30, 2019 and 2018. The interest rate under the joint venture 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, 2019 and 2018:

Total interest expense was $14.0 million for the six months ended June 30, 2019, an increase of $0.2 million from $13.8 million for the six months ended June 30, 2019 and 2018. Interest expense consists of the interest incurred, commitment fees and amortization of debt issuance cost and fair value of debt assumed for the period. As a result of adopting the revised guidance for Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities on January 1, 2019 on a prospective basis, those amounts related to cash flow hedges are reclassified to earnings in the same income statement line as the hedged item when the hedged item affects earnings. Amortization amounts reclassified to or recorded to earnings for our interest rate swaps for the six months ended June 30, 2019 are presented as a component of interest expense compared with the presentation in previous periods in the gain (loss) on derivatives instruments line item in our consolidated statements of income. Refer to notes 2 and 13 to the unaudited condensed interim consolidated financial statements for additional information.

The interest incurred of $12.8 million for the six months ended June 30, 2019, decreased by $0.6 million compared to $13.4 million for the six months ended June 30, 2018, principally due to repayment of outstanding loan balances for the loan facilities related to the PGN FSRU Lampung (the "Lampung facility"). On January 29, 2019, we entered into a loan agreement with a syndicate of banks (the "$385 million facility") to refinance the outstanding balances of the Gallant/Grace facility. On January 31, 2019, we drew $320 million to refinance outstanding amounts under the existing Gallant/Grace facility. For more information refer to "Liquidity and Capital Resources."

Amortization and gain on cash flow hedge of $0.2 million for the six months ended June 30, 2019 was mainly due to the inclusion of a gain on the settlement of the interest rate swaps terminated when the Gallant/Grace facility was extinguished. This line item also includes the amortization of the amounts excluded from hedge effectiveness for discontinued hedges and re-designated hedges related to the Lampung facility and the initial fair values of interest rate swaps related to the $385 million facility.

Commitment fees were $0.3 million for the six months ended June 30, 2019, an increase of $0.3 million from the six months ended June 30, 2018. For the six months ended June 30, 2019, the commitment fees relate to the undrawn $63 million revolving credit facility under the $385 million facility. 

Amortization of debt issuance cost and fair value of debt assumed for the six months ended June 30, 2019 were $1.1 million, an increase of $0.8 million from $0.3 million for the six months ended June 30, 2018. The increase in amortization of debt issuance cost and fair value of debt assumed was mainly a result of the refinancing and repayment of the Gallant/Grace facility with the $385 million facility on January 31, 2019. Payment of debt issuance costs was $5.8 million, which was deferred and presented as a direct deduction from the outstanding principal of the $385 million facility in the consolidated balance sheet, is amortized on an effective interest rate method over the term of the $385 million facility. As further discussed below, the amortization of the fair value of debt assumed related to the Gallant/Grace facility also ceased.

Gain (Loss) on Debt Extinguishment. The following table sets forth details of our gain (loss) on debt extinguishment for the six months ended June 30, 2019 and 2018:

Gain on debt extinguishment for the six months ended June 30, 2019 was $1.0 million, an increase of $1.0 million compared to the six months ended June 30, 2018. Gain on debt extinguishment for the six months ended June 30, 2019 related to the repayment of the Gallant/Grace facility on January 31, 2019. The unamortized amounts related to the fair value of debt assumed, or premium, recognized in relation to the acquisitions of the entities owning the Höegh Gallant on October 1, 2015 and the entities owning the Höegh Grace on January 1, 2017, of approximately $1.0 million, which was recognized as a gain on January 31, 2019 due to the extinguishment of the Gallant/Grace facility.

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, 2019 and 2018:

As discussed under interest expense above, the gain (loss) on derivative instruments for cash flow hedges for the six months ended June 30, 2019, is presented as a component of interest expense. Gain on derivative instruments for the six months ended June 30, 2018 was $1.2 million.

Gain on derivative instruments for the six months ended June 30, 2018 related to the interest rate swaps for the Lampung facility and the Gallant/Grace facility.

Other Items, Net. The following table sets forth details of our other items, net for the six months ended June 30, 2019 and 2018:

Other items, net for the six months ended June 30, 2019 were $1.8 million, an increase of $0.3 million from $1.5 million for the six months ended June 30, 2018. The increase is mainly due higher withholding tax on interest expense of $0.3 million for the six months ended June 30, 2019 compared to same period last year.

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the six months ended June 30, 2019 and 2018:

Income before tax for the six months ended June 30, 2019 was $23.7 million, a decrease of $21.9 million from $45.6 million for the six months ended June 30, 2018. The income before tax for both periods was impacted by the unrealized gains (losses) on derivative instruments mainly on our share of equity in earnings (losses) of joint ventures. Excluding all the unrealized gains and losses on derivative instruments, income before tax for the six months ended June 30, 2019 would have been $30.9 million, a decrease of $4.0 million from $34.9 million for the six months June 30, 2018. Excluding the unrealized gains (losses) on derivative instruments, the decrease is primarily due to lower time charter revenue, lower other revenue, and higher vessel operating expenses which was partially offset by the gain on debt extinguishment.

Income Tax Expense. The following table sets forth details of our income tax expense for the six months ended June 30, 2019 and 2018:

Income tax expense for the six months ended June 30, 2019 was $3.4 million, a decrease of $0.6 million compared to $4.0 million for the six months ended June 30, 2018. We are not subject to Marshall Islands income taxes. However, we are subject to tax for earnings of our subsidiaries incorporated in Singapore, Indonesia, and for certain Colombian source income. The charterer in Colombia pays certain taxes directly to the Colombian tax authorities on behalf of our subsidiaries that own and operate the Höegh Grace. 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 $0.4 million for each of the six months ended June 30, 2019 and 2018.

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, 2019 and 2018, there were increases in uncertain tax positions of $0.2 million and $0.4 million, respectively. As of June 30, 2019, the unrecognized tax benefits were $1.9 million.

Net Income (Loss). The following table sets forth details of our net income for the six months ended June 30, 2019 and 2018:

As a result of the foregoing, net income for the six months ended June 30, 2019 was $20.3 million, a decrease of $21.3 million from net income of $41.6 million for the six months ended June 30, 2018. For the six months ended June 30, 2019, net income of $6.7 million was attributable to the holders of the Series A preferred units, an increase of $1.1 million from $5.6 million due to additional preferred units issued as part of our at-the-market offering program (“ATM program”). Our limited partners' interest in net income for the six months ended June 30, 2019 was $13.5 million, a decrease of $22.5 million from limited partners’ interest in net income of $36.0 million for the six months ended June 30, 2018.

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 (gain (loss) on debt extinguishment, gain (loss) on derivative instruments and other items, net). 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, interest income from advances to joint ventures, and interest expense related to the outstanding balances on the $85 million revolving credit facility and the $385 million facility are included in “Other.”

For the six months ended June 30, 2019 and 2018, 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, 2019 and 2018, Joint Venture FSRUs include two 50% owned FSRUs, the Neptune and the 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) internal interest income and interest expense between the Partnership's subsidiaries that eliminate in consolidation are not included in the segment columns for the other financial income (expense), net line. 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.

Majority Held FSRUs. The following table sets forth details of segment results for the Majority Held FSRUs for the six months ended June 30, 2019 and 2018:

Time charter revenues for the six months ended June 30, 2019 were $69.9 million compared to $70.4 million for the six months ended June 30, 2018. As discussed above, the decrease was mainly due to lower time charter revenue for the Höegh Gallant. The Höegh Gallant had the equivalent of 16 days of off-hire due to the scheduled drydock for the six months ended June 30, 2019 compared with 10 days of off-hire for the six months ended June 30, 2018. The PGN FSRU Lampung and the Höegh Grace were both on-hire for the full six months periods ended June 30, 2019 and 2018.

Other revenue for the six months ended June 30, 2019 and 2018 consists of insurance proceeds received for a claim related to the PGN FSRU Lampung's warranty work from prior periods.   

Vessel operating expenses for the six months ended June 30, 2019 were $15.0 million, an increase of $3.8 million from $11.2 million for the six months ended June 30, 2018. The higher expense is mainly due to an increase in maintenance expenses of approximately $3.0 million as a result of maintenance activities completed during the drydock for the Höegh Gallant, and the on-water survey for the PGN FSRU Lampung for the six months ended June 30, 2019 compared to the corresponding period of 2018. The remaining increase was due to higher ongoing vessel operating expenses, in part, due to lower levels of purchasing during the six months ended June 30, 2018.

Administrative expenses for the six months ended June 30, 2019 were $1.6 million, a decrease of $0.1 million from $1.7 million for the six months ended June 30, 2018. The decrease reflects lower administrative expenses for the Höegh Gallant and the Höegh Grace.

Segment EBITDA for the six months ended June 30, 2019 was $53.3 million, a decrease of $5.3 million from $58.6 million for the six months ended June 30, 2018. The Segment EBITDA was negatively impacted by more equivalent off-hire days for the Höegh Gallant and higher vessel operating expenses for the six months ended June 30, 2019 compared with the six months ended June 30, 2018.

Joint Venture FSRUs. The following table sets forth details of segment results for the Joint Venture FSRUs for the six months ended June 30, 2019 and 2018:

Total time charter revenues for the six months ended June 30, 2019 were $21.1 million, a decrease of $0.5 million compared to $21.6 million for the six months ended June 30, 2018. Lower time charter revenues for the six months ended June 30, 2019 mainly reflects lower reimbursement of costs incurred for projects of the charterer which was partially offset by higher amortization of deferred revenues. For the six months ended June 30, 2019, the higher amortization of deferred revenue mainly related to costs reimbursed by the charterer for the vessel modifications and drydock completed in 2018 for the Cape Ann.

Vessel operating expenses were $3.4 million for the six months ended June 30, 2019, a decrease of $0.8 million compared to $4.2 million for the six months ended June 30, 2018. Vessel operating expenses for the six months ended June 30, 2019 were lower reflecting less costs incurred for maintenance and projects for the charterer compared with the six months ended June 30, 2018.

Administrative expenses for the six months ended June 30, 2019 were $0.7 million, a decrease of $0.3 million from $1.0 million for the six months ended June 30, 2018. The lower administrative expenses for the six months ended June 30, 2019 were mainly due the additional administrative expenses for the six months ended June 30, 2018 related to preparations for a new project and the drydock of the Cape Ann that commenced in August 2018.

Segment EBITDA was $17.0 million for the six months ended June 30, 2019 compared with $16.4 million for the six months ended June 30, 2018.

Other. The following table sets forth details of other results for the six months ended June 30, 2019 and 2018:

Administrative expenses and Segment EBITDA for the six months ended June 30, 2019 and 2018 were $3.2 million.

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 interest expenses related to the $85 million revolving credit facility from Höegh LNG. In addition, for the six months ended June 30, 2019, other financial income (expense), net also includes interest expense, consisting of interest incurred, commitment fees and amortization of debt issuance costs, related to the $385 million facility drawn on January 31, 2019 with no comparable expenses for the six months ended June 30, 2018.

As of June 30, 2019, the revolving credit facility under the $385 million facility has not been drawn and a commitment fee is paid on the undrawn balance. Refer to "Liquidity and Capital Resources" below as well as notes 9 and 18 to the unaudited condensed interim consolidated financial statements for more details on the refinancing of the Gallant/Grace facility and the new $385 million facility.

Other financial income (expense), net was an expense of $8.4 million for the six months ended June 30, 2019, an increase of $6.9 million from $1.5 million for the six months ended June 30, 2018 principally due to higher interest expense as a result of drawing on the $385 million facility.

Three Months Ended June 30, 2019 Compared with the Three Months Ended June 30, 2018

Time Charter Revenues. The following table sets forth details of our time charter revenues for the three months ended June 30, 2019 and 2018:

Time charter revenues for the three months ended June 30, 2019 were $33.8 million, a decrease of $1.7 million from $35.5 million for the three months ended June 30, 2018. The decrease was mainly due to lower time charter revenue for the Höegh Gallant for the three months ended June 30, 2019. During the second quarter of 2019, the Höegh Gallant had a scheduled drydock for which it was off-hire and had reduced hire to cover certain payments to the charterer for LNG consumption related to drydock. For the Höegh Gallant, the reduction in revenues was equivalent to approximately 16 days of off-hire due to scheduled drydock for the three months ended June 30, 2019. The Höegh Gallant was on-hire for the full three months periods ended June 30, 2018. The impact of reduced time charter revenue from the Höegh Gallant was partially offset by higher revenues for reimbursable costs for both the PGN FSRU Lampung and the Höegh Grace. The PGN FSRU Lampung and the Höegh Grace were both on-hire for the full three months periods ended June 30, 2019 and 2018.

Other revenue. The following table sets forth details of our other revenue for the three months ended June 30, 2019 and 2018:

Other revenue for the three months ended June 30, 2018 consists of insurance proceeds received for a claim related to the PGN FSRU Lampung's warranty work from prior periods.

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the three months ended June 30, 2019 and 2018:

Vessel operating expenses for the three months ended June 30, 2019 were $9.1 million, an increase of $3.6 million from $5.5 million for the three months ended June 30, 2018. The higher expense mainly reflected an increase in maintenance expense of approximately $3.0 million included in vessel operating expenses principally for the Höegh Gallant but also for the PGN FSRU Lampung. During the scheduled drydock of the Höegh Gallant and the on-water survey of the PGN FSRU Lampung, the opportunity was utilized to accelerate the timing of as many maintenance procedures as possible. Performing routine maintenance during the drydock reduces the risk of service interruption or off-hire in subsequent periods. The remaining increase was due to higher ongoing vessel operating expenses, in part, due to lower levels of purchasing during the three months ended June 30, 2018.

Administrative Expenses. The following table sets forth details of our administrative expenses for the three months ended June 30, 2019 and 2018: 

Administrative expenses for the three months ended June 30, 2019 were $2.3 million, an increase of $0.2 million from $2.1 million for the three months ended June 30, 2018. The increase of $0.2 million reflects higher legal, audit and other advisor costs incurred in the three months ended June 30, 2019 in comparison to 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, 2019 and 2018:

Depreciation and amortization for the three months ended June 30, 2019 were $5.6 million, an increase of $0.3 million from $5.3 million for the three months ended June 30, 2018. In the second quarter of 2019, a drydock was completed for the Höegh Gallant. As a result, the remaining depreciation for the drydock component of the vessel was expensed.  

Total Operating Expenses. The following table sets forth details of our total operating expenses for the three months ended June 30, 2019 and 2018:

Total operating expenses were $16.9 million for the three months ended June 30, 2019, an increase of $4.1 million from $12.8 million in the three months ended June 30, 2018. The increase is a result of the higher vessel operating expenses and depreciation mainly due to maintenance performed during the drydock for the Höegh Gallant and the on-water class renewal survey for the PGN FSRU Lampung.

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, 2019 and 2018:

Equity in losses of joint ventures for the three months ended June 30, 2019 was $1.6 million, a decrease of $6.7 million from equity in earnings of joint ventures of $5.1 million for the three months ended June 30, 2018. Unrealized gains and 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, 2019 and 2018. 

Excluding the unrealized loss on derivative instruments for the three months ended June 30, 2019 and the unrealized gain on derivative instruments for the three months ended June 30, 2018, the equity in earnings of joint ventures would have been $3.1 million for the three months ended June 30, 2019, an increase of $1.0 million from $2.1 million for the three months ended June 30, 2018.

Our share of our joint ventures’ operating income was $6.1 million for the three months ended June 30, 2019, compared with $5.5 million for the three months ended June 30, 2018. Our share of other financial expense, net, principally consisting of interest expense, was $3.0 million for the three months ended June 30, 2019, a decrease of $0.3 million from $3.3 million for the three months ended June 30, 2018. The reduction was mainly due to lower interest expense due to repayment of principal on debt between the two periods.

Our share of unrealized loss on derivative instruments was $4.7 million for the three months ended June 30, 2019, an increase of $7.7 million from an unrealized gain of $3.0 million for the three months ended June 30, 2018.

There was no accrued income tax expense for the three months ended June 30, 2019 and 2018. Our joint ventures did not pay any dividends for the three months ended June 30, 2019 and 2018.

Operating Income (Loss). The following table sets forth details of our operating income for the three months ended June 30, 2019 and 2018:

Operating income for the three months ended June 30, 2019 was $15.3 million, a decrease of $13.6 million from operating income of $28.9 million for the three months ended June 30, 2018. Excluding the impact of the unrealized gains (losses) on derivatives impacting the equity in earnings (losses) of joint ventures for the three months ended June 30, 2019 and 2018, operating income for the three months ended June 30, 2019 would have been $19.9 million, a decrease of $6.0 million from $25.9 million for the three months ended June 30, 2018. Excluding the impact of the unrealized gains (losses) on derivatives, the decrease for the three months ended June 30, 2019 is primarily due to lower time charter revenue as a result of off-hire related to the drydock for the Höegh Gallant, lower other revenue and higher vessel operating expenses as a result of the maintenance performed for the Höegh Gallant and the PGN FSRU Lampung.

Interest Income. The following table sets forth details of our interest income for the three months ended June 30, 2019 and 2018:

Interest income for the three months ended June 30, 2019 was $0.3 million, an increase of $0.1 million from interest income of $0.2 million for the three months ended June 30, 2018. Interest income is mainly related to interest on cash balances and accrued interest on the advances to our joint ventures for the three months ended June 30, 2019 and 2018.

Interest Expense. The following table sets forth details of our interest expense for the three months ended June 30, 2019 and 2018:

Total interest expense was $7.1 million for the three months ended June 30, 2019, an increase of $0.2 million from $6.9 million for the three months ended June 30, 2018. Interest expense consists of the interest incurred, commitment fees and amortization of debt issuance cost and fair value of debt assumed for the period. As a result of adopting the revised guidance for Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities on January 1, 2019 on a prospective basis, those amounts related to cash flow hedges are reclassified to earnings in the same income statement line as the hedged item when the hedged item affects earnings. Amortization amounts reclassified to or recorded to earnings for our interest rate swaps for the three months ended June 30, 2019 are presented as a component of interest expense compared with the presentation in previous periods in the gain (loss) on derivatives instruments line item in our consolidated statements of income. Refer to notes 2 and 13 to the unaudited condensed interim consolidated financial statements for additional information.

The interest incurred of $6.3 million for the three months ended June 30, 2019, decreased by $0.4 million compared to $6.7 million for the three months ended June 30, 2018, principally due to repayment of outstanding loan balances for the "Lampung facility.

Amortization related to cash flow hedge of $0.02 million for the three months ended June 30, 2019 includes the amortization of the amounts excluded from hedge effectiveness for discontinued hedges and re-designated hedges related to the Lampung facility and the initial fair values of interest rate swaps related to the $385 million facility.

Commitment fees were $0.1 million for the three months ended June 30, 2019, an increase of $0.1 million from the three months ended June 30, 2018. For the three months ended June 30, 2019, the commitment fees relate to the undrawn $63 million revolving credit facility under the $385 million facility. 

Amortization of debt issuance cost and fair value of debt assumed for the three months ended June 30, 2019 were $0.6 million, an increase of $0.4 million from $0.2 million for the three months ended June 30, 2018. The increase in amortization of debt issuance cost and fair value of debt assumed was mainly a result of the refinancing and repayment of the Gallant/Grace facility with the $385 million facility on January 31, 2019. Payment of debt issuance costs was $5.8 million, which is deferred and presented as a direct deduction from the outstanding principal of the $385 million facility in the consolidated balance sheet and amortized on an effective interest rate method over the term of the $385 million facility. The amortization of the fair value of debt assumed related to the Gallant/Grace facility also ceased when it was repaid.

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, 2019 and 2018:

As discussed under interest expense above, the gain (loss) on derivative instruments for cash flow hedges for the three months ended June 30, 2019, is presented as a component of interest expense. Gain on derivative instruments for the three months ended June 30, 2018 was $0.5 million.

Gain on derivative instruments for the three months ended June 30, 2018 related to the interest rate swaps for the Lampung facility and the Gallant/Grace facility.

Other Items, Net. The following table sets forth details of our other items, net for the three months ended June 30, 2019 and 2018:

Other items, net for the three months ended June 30, 2019 were $0.8 million, a decrease of $0.1 million from $0.9 million for the three months ended June 30, 2018. The decrease is mainly due to a positive change in the foreign exchange gain (loss) for the three months ended June 30, 2019 compared to same period last year.

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the three months ended June 30, 2019 and 2018:

Income before tax for the three months ended June 30, 2019 was $7.7 million, a decrease of $14.1 million from $21.8 million for the three months ended June 30, 2018. The income before tax for both periods was impacted by the unrealized gains (losses) on derivative instruments mainly on our share of equity in earnings (losses) of joint ventures. Excluding all the unrealized gains and losses on derivative instruments, income before tax for the three months ended June 30, 2019 would have been $12.3 million, a decrease of $6.0 million from $18.3 million for the three months June 30, 2018. Excluding the unrealized gains (losses) on derivative instruments, the decrease is primarily due to lower time charter revenue as a result of off-hire related to the drydock for the Höegh Gallant, lower other revenue and higher vessel operating expenses as a result of the maintenance performed for the Höegh Gallant and PGN FSRU Lampung.

Income Tax Expense. The following table sets forth details of our income tax expense for the three months ended June 30, 2019 and 2018:

Income tax expense for the three months ended June 30, 2019 was $1.5 million, a decrease of $0.4 million compared to $1.9 million for the three months ended June 30, 2018. The amount of non-cash income tax expense was $0.2 million for each of the three months ended June 30, 2019 and 2018.

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, 2019 and 2018, there were increases in uncertain tax positions of $0.1 million and $0.4 million, respectively.

Net Income (Loss). The following table sets forth details of our net income for the three months ended June 30, 2019 and 2018:

As a result of the foregoing, net income for the three months ended June 30, 2019 was $6.2 million, a decrease of $13.7 million from net income of $19.9 million for the three months ended June 30, 2018. For the three months ended June 30, 2019, net income of $3.4 million was attributable to the holders of the Series A preferred units, an increase of $0.4 million from $3.0 million due to additional preferred units issued as part of our ATM program. Our limited partners' interest in net income for the three months ended June 30, 2019 was $2.8 million, a decrease of $14.1 million from limited partner’s interest in net income of $16.9 million for the three months ended June 30, 2018.

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, 2019 and 2018:

Time charter revenues for the three months ended June 30, 2019 were $33.8 million compared to $35.5 million for the three months ended June 30, 2018. As discussed above, the decrease was mainly due to lower time charter revenue for the Höegh Gallant. The Höegh Gallant had the equivalent of 16 days of off-hire due to the scheduled drydock for the three months ended June 30, 2019 compared with no days of off-hire for the three months ended June 30, 2018. The PGN FSRU Lampung and the Höegh Grace were both on-hire for the full three months periods ended June 30, 2019 and 2018.

Other revenue for the three months ended June 30, 2018 consists of insurance proceeds received for a claim related to the PGN FSRU Lampung's warranty work from prior periods.

Vessel operating expenses for the three months ended June 30, 2019 were $9.1 million, an increase of $3.6 million from $5.5 million for the three months ended June 30, 2018. The higher expense is mainly due to an increase in maintenance expenses of approximately $3.0 million as a result of maintenance activities completed during the drydock for the Höegh Gallant and the on-water survey for the PGN FSRU Lampung for the three months ended June 30, 2019 compared to the corresponding period of 2018. The remaining increase was due to higher ongoing vessel operating expenses, in part, due to lower levels of purchasing during the three months ended June 30, 2018.

Administrative expenses for the three months ended June 30, 2019 were $0.8 million, a decrease of $0.1 million from $0.9 million for the three months ended June 30, 2018. The decrease reflects lower administrative expenses for the Höegh Gallant and the Höegh Grace.

Segment EBITDA for the three months ended June 30, 2019 was $23.9 million, a decrease of $6.3 million from $30.2 million for the three months ended June 30, 2018. The Segment EBITDA was negatively impacted by the equivalent off-hire days for the Höegh Gallant for the three months ended June 30, 2019 while all three vessels were on-hire during the three months ended June 30, 2018. In addition, higher vessel operating expenses mainly due maintenance activities performed negatively contributed to the Segment EBITDA for the three months ended June 30, 2019 compared with the corresponding period of 2018.

Joint Venture FSRUs. The following table sets forth details of segment results for the Joint Venture FSRUs for the three months ended June 30, 2019 and 2018:

Total time charter revenues for the three months ended June 30, 2019 were $10.8 million, an increase of $ 0.2 million compared to $10.6 million for the three months ended June 30, 2018. For the three months ended June 30, 2019, both the Neptune and the Cape Ann had higher time charter revenues related to reimbursement of project costs compared with the three months ended June 30, 2018.

Vessel operating expenses were $1.8 million for the three months ended June 30, 2019, a decrease of $0.3 million compared to $2.1 million for the three months ended June 30, 2018. Vessel operating expenses for the three months ended June 30, 2019 were lower for both vessels reflecting less costs incurred for maintenance and projects for the charterer.

Administrative expenses for the three months ended June 30, 2019 were $0.4 million, a decrease of $0.2 million from $0.6 million for the three months ended June 30, 2018. The lower administrative expenses for the three months ended June 30, 2019 were mainly due the additional administrative expenses for the three months ended June 30, 2018 related to preparations for a new project and the drydock of the Cape Ann that commenced in August 2018.

Segment EBITDA was $8.5 million for the three months ended June 30, 2019 compared with $7.9 million for the three months ended June 30, 2018.

Other. The following table sets forth details of other results for the three months ended June 30, 2019 and 2018:

Administrative expenses and Segment EBITDA for the three months ended June 30, 2019 were $1.5 million, an increase of $0.3 million from $1.2 million for the three months ended June 30, 2018. The increase of $0.3 million reflects higher legal, audits and other advisor costs incurred in the three months ended June 30, 2019 in comparison to the three months ended June 30, 2018.  

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 interest expense related to the $85 million revolving credit facility from Höegh LNG. In addition, for the three months ended June 30, 2019, other financial income (expense), net also includes interest expense, consisting of interest incurred, commitment fees and amortization of debt issuance costs, related to the $385 million facility drawn on January 31, 2019 with no comparable expenses for the three months ended June 30, 2018.

As of June 30, 2019, the revolving credit facility under the $385 million facility has not been drawn and a commitment fee is paid on the undrawn balance. Refer to "Liquidity and Capital Resources" below as well as notes 9 and 18 to the unaudited condensed interim consolidated financial statements for more details on the refinancing of the Gallant/Grace facility and the new $385 million facility.

Other financial income (expense), net was an expense of $4.9 million for the three months ended June 30, 2019, an increase of $4.1 million from $0.8 million for the three months ended June 30, 2018 principally due to higher interest expense as a result of drawing on the $385 million facility.

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, funding on-water surveys or drydocking 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 on-water surveys, and maintaining cash reserves against fluctuations in operating cash flows.

Our sources of liquidity include cash balances, cash flows from our operations, interest payments from our advances to our joint ventures, our undrawn balance under the $85 million revolving credit facility from Höegh LNG and our undrawn balance under the $63 million revolving credit facility, as further described below. In addition, liquidity can also be supplemented, from time to time, by net proceeds of the ATM program, depending on the market conditions. 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. The advances to our joint ventures (accrued interest from prior periods on repaid shareholder loans) 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 suspended payments on the shareholder loans as of September 30, 2017 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 reduces cash flows available to us. 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 (refer to note 7 of the unaudited condensed interim consolidated financial statements); 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, 2019, PT Höegh LNG Lampung is in the process of establishing the required statutory reserves and therefore expects to be able to make dividend payments in the future under Indonesia law. Under the Lampung facility, there are limitations on cash dividends and loan distributions that can be made to the Partnership. 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 Cyprus, 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. Dividends from Höegh Cyprus may only be distributed out of profits and not from the share capital of the company. Dividends and other distributions from Höegh Cyprus, Höegh Colombia and Höegh FSRU IV may only be distributed if after the dividend payment, the Partnership would remain in compliance with the financial covenants under the $385 million facility. For a description of our credit facilities and revolving credit facilities, please see notes 15 and 20 to the audited consolidated financial statements contained in our 2018 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, 2019, the Partnership has no material commitments for capital expenditures. However, during the third quarter of 2019, the PGN FSRU Lampung will complete its class renewal survey while remaining on the water that commenced in the second quarter of 2019. Additional maintenance expenses are expected to be incurred for the PGN FSRU Lampung during the third quarter of 2019.

For the joint ventures, the Neptune will have a class renewal survey while remaining on the water during the third quarter of 2019. The majority of the survey expenditures are expected to be compensated by the charterer and the Neptune will remain on-hire. During the class survey of the Neptune, the joint venture expects to incur costs for certain capital improvements that will not be reimbursed by the charterer for which our 50% share is expected to be approximately $0.2 million for the year ended December 31, 2019. 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, 2019. The joint ventures will continue to monitor this issue and adjust accruals, as might be required, based upon additional information and further developments. The claim may be resolved through negotiation or arbitration. Subsequent to the partial determination of the arbitration, the parties have initiated discussions with the objective of reaching a negotiated solution. 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, if any, would not be expected to be indemnified.

A subsidiary of the Partnership, as the owner of the Höegh Gallant, has a lease and maintenance agreement with EgyptCo until April 2020. To date, the Partnership has not entered a new contract for the Höegh Gallant from April 2020. 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.

On January 29, 2019, we entered into a loan agreement with a syndicate of banks to refinance the outstanding balances of the Gallant/Grace facility. The new facility includes a senior secured term loan and revolving credit facilities with an aggregate borrowing capacity of the lesser of (i) $385 million and (ii) 65% of the fair market value of the Höegh Gallant and 75% of the market value of the Höegh Grace as of the initial borrowing date. The $385 million facility is structured as a term loan with commercial and export tranches for each vessel to refinance outstanding amounts under the existing Gallant/Grace facility and a revolving credit facility for the Partnership with a drawing capacity of $63 million. On January 31, 2019, we drew $320 million under the commercial and the export credit tranches on the $385 million facility and used proceeds of $303.2 million and $1.6 million to settle the outstanding balance and accrued interest, respectively, on the Gallant/Grace facility and $5.5 million to pay arrangement fees (debt issuance cost) under the $385 million facility. The remaining proceeds of $9.6 million were used for general partnership purposes.

As of June 30, 2019, the total outstanding principal on our long-term debt was $482.9 million related to the Lampung and the $385 million facilities and the $85 million revolving credit facility. The book value of our total long-term debt was $472.5 million as of June 30, 2019. On May 28, 2019, the repayment date on the $85 million revolving credit facility was extended to January 1, 2023 and the terms amended for the interest rate to be LIBOR plus a margin of 1.4% in 2019, 3.0% in 2020 and 4.0% thereafter. For a description of our credit facilities and revolving credit facilities, please see notes 15 and 20 to the audited consolidated financial statements contained in our 2018 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. 

We have not made use of derivative instruments for currency risk management purposes. We had interest rate swaps contracts for the Lampung facility ("Lampung interest rate swaps") and the $385 million facility ("$385 million interest rate swaps") as of June 30, 2019. As of June 30, 2019, we had outstanding interest rate swap agreements for a total notional amount of $381.9 million to hedge against the floating interest rate risks of our long-term debt under the Lampung facility and the $385 million facility. 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, 2019, we had cash and cash equivalents of $27.1 million. Current restricted cash for operating obligations of the PGN FSRU Lampung was $8.0 million and long-term restricted cash required under the Lampung facility was $12.9 million as of June 30, 2019. On August 12, 2019, we drew $48.3 million on the $63 million revolving credit facility under the $385 million facility. On August 13, 2019, we repaid $34.0 million on the $85 million revolving credit facility. As a result, the Partnership had undrawn balances of $76.2 million and $14.7 million on the $85 million revolving credit facility and $63 million revolving credit facility, respectively.

As of June 30, 2019, the Partnership's total current liabilities exceeded total current assets by $12.4 million. This is partly a result of the current portion of long-term debt of $44.7 million being classified as current while restricted cash of $12.9 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. The Partnership does not intend to maintain a cash balance to fund the 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 balances on the $85 million revolving credit facility to Höegh LNG and the $63 million revolving credit facility provide sources of liquidity reserves to supplement funding of our distributions and other general liquidity needs. We believe our current resources, including the undrawn balance on the $85 million revolving credit facility to Höegh LNG and the undrawn balance on the $63 million revolving credit facility, are sufficient to meet our working capital requirements for our current business for the next twelve months.

On May 13, 2019, the Partnership drew $3.5 million under the $85 million revolving credit facility.

On May 15, 2019, the Partnership paid a quarterly cash distribution of $15.0 million, or $0.44 per common and subordinated unit, with respect to the first quarter of 2019.

On May 15, 2019, the Partnership paid a cash distribution of $3.4 million, or $0.546875 per Series A preferred unit, for the period commencing on February 15, 2019 to May 14, 2019.

On August 12, 2019, the Partnership drew $48.3 million on the revolving credit facility under the $385 million facility. On August 13, 2019, the Partnership repaid $34.0 million on the $85 million revolving credit facility.

On August 14, 2019, the Partnership paid a cash distribution of $15.0 million, or $0.44 per common and subordinated unit, with respect to the second quarter of 2019, equivalent to $1.76 per unit on an annual basis.

On August 15, 2019, the Partnership paid a cash distribution of $3.4 million, or $0.546875 per Series A preferred unit, for the period commencing on May 15, 2019 to August 14, 2019.

For the period from July 1, 2019 to August 19, 2019, we sold 2,134 Series A preferred units under our ATM program at an average gross sales price of $25.79 per unit and received net proceeds, after sales commissions, of $0.05 million. For the period from July 1, 2019 to August 19, 2019, we did not sell any common units under our ATM program. We sold 51,267 Series A preferred units and 53,160 common units under the ATM program in the second quarter of 2019. From the commencement of the ATM program in January 2018 through June 30, 2019, we have sold 1,580,337. Series A preferred units and 306,266 common units and received net proceeds of $40.0 million and $5.6 million, respectively. The compensation paid to the Agent for such sales was $0.8 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:

Six Months Ended June 30, 2019 Compared with the Six Months Ended June 30, 2018

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $39.6 million for the six months ended June 30, 2019, a decrease of $0.4 million compared with $40.0 million for the six months ended June 30, 2018. Before changes in working capital, cash provided by operating activities was $39.2 million for the six months ended June 30, 2019, a decrease of $2.2 million compared to $41.4 million for the six months ended June 30, 2018. The decrease of $2.2 million was primarily due to higher maintenance expenses in the Majority held FSRU segment and the capitalized expenditure for drydocking related to the Höegh Gallant for the six months ended June 30, 2019 compared with the same period last year. These negative impacts from operations were partly offset by an increase in accrued interest expense as a result of the repayment schedule of the $385 million facility drawn on January 31, 2019, a positive impact as a result of settlement of the Gallant/Grace interest rate swap agreements on January 31, 2019, and a positive impact of including the repayment of principal on direct financing lease as a component of operating activities as a result of the new leasing standard adopted on January 1, 2019.

On January 1, 2019, we adopted the new leasing standard using the optional transition method to apply the new standard at the transition date of January 1, 2019 with no retrospective adjustments to prior periods. As of January 1, 2019, cash payments received for the principal portion of the direct financing lease related to the PGN FSRU Lampung are presented as an operating cash inflow rather than as an investing cash inflow as presented for prior periods in the consolidated statement of cash flows.

Changes in working capital increased net cash provided by operating activities by $0.4 million for the six months ended June 30, 2019, an increase of $1.9 million from a negative contribution of $1.4 million for the six months ended June 30, 2018. The increase in positive contribution of changes in working capital was mainly due to an increase in amounts due to owners and affiliates between the two periods partly offset by a decrease in trade receivables.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $0.1 million for the six months ended June 30, 2019 compared with net cash provided by investing activities of $1.8 million for the six months ended June 30, 2018. The change from net cash provided by investing activities to net cash used in investing activities of $2.0 million was mainly the result of reclassification of the receipts from repayment on principal on the direct financing lease from investing activities in 2018 to operating activities in 2019 due to adoption of the new standard as further described above.  

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities for the six months ended June 30, 2019 was $36.9 million compared with $44.7 million for the six months ended June 30, 2018.

Net cash used in financing activities for the six months ended June 30, 2019 was mainly due to the repayment of long-term debt of $320.0 million which includes repayment of $9.5 million on the Lampung facility, repayment of $6.4 million on the $385 million facility, repayment of $0.9 million on the export credit tranche of the Gallant facility on January 29, 2019, and a settlement of $303.2 million of the remaining outstanding balance on the Gallant/Grace facility on January 31, 2019, our payment of $5.8 million in debt issuance costs under the $385 million facility, our payment of cash distributions to our common and subordinated unitholders of $30.0 million and our payment of cash distributions to the holders of our Series A preferred units of $6.8 million. This was partially offset by receipt of $320.0 million in proceeds under the $385 million facility drawn on January 31, 2019 and by receipt of $3.5 million under the $85 million revolving credit facility and proceeds of $1.0 million and $1.3 million for the issuance of common and Series A preferred units, respectively, under our ATM program.

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, our payment of cash distributions to our common and subordinated unitholders of $29.4 million and our payment of cash distributions 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 proceeds of $2.9 million and $19.6 million for the issuance of common and Series A preferred units, respectively, under our ATM program.

As a result of the foregoing, cash, cash equivalents and restricted cash increased by $2.6 million for the six months ended June 30, 2019, while cash, cash equivalents and restricted cash decreased by $2.9 million for the six months ended June 30, 2018.

Three Months Ended June 30, 2019 Compared with the Three Months Ended June 30, 2018

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $17.7 million for the three months ended June 30, 2019, a decrease of $2.9 million compared with $20.6 million for the three months ended June 30, 2018. Before changes in working capital, cash provided by operating activities was $13.6 million for the three months ended June 30, 2019, a decrease of $7.9 million compared to $21.5 million for the three months ended June 30, 2018. The decrease of $7.9 million was primarily due to higher maintenance expenses in the Majority held FSRU segment and capitalized expenditure for drydocking related to the Höegh Gallant for the three months ended June 30, 2019 compared with the same period last year. The negative impact from operations was partly offset by a positive impact of including the repayment of principal on direct financing lease as a component of operating activities as a result of the new leasing standard adopted on January 1, 2019.

Changes in working capital reduced net cash provided by operating activities by $4.1 million for the three months ended June 30, 2019, an increase of $5.0 million from a negative contribution of $0.9 million for the three months ended June 30, 2018. The increase from negative to positive contribution of changes in working capital was mainly due to an increase in amounts due to owners and affiliates and an increase in prepaid expenses and other receivables between the two periods partly offset by a decrease in trade receivables.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $0.1 million for the three months ended June 30, 2019 compared with net cash provided by investing activities of $0.9 million for the three months ended June 30, 2018. The change from net cash provided by investing activities to net cash used in investing activities of $1.0 million was mainly the result of reclassification of the receipts from repayment on principal on the direct financing lease from investing activities in 2018 to operating activities in 2019 due to adoption of the new standard as further described above.  

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities for the three months ended June 30, 2019 was $23.8 million compared with $30.0 million for the three months ended June 30, 2018.

Net cash used in financing activities for the three months ended June 30, 2019 was mainly due to the quarterly repayment of $4.8 million on the Lampung facility, the quarterly repayment of $6.4 million on the $385 million facility, our payment of cash distributions to our common and subordinated unitholders of $15.0 million and our payment of cash distributions to the holders of our Series A preferred units of $3.4 million. This was partially offset by receipt of $3.5 million under the $85 million revolving credit facility and proceeds of $1.0 million and $1.3 million for the 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, 2018 was mainly due to the quarterly repayment of $4.8 million on the Lampung facility, $3.3 million on the Gallant facility, $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, our payment of cash distributions to our common and subordinated unitholders of $15.0 million and our payment of cash distributions to the holders of our Series A preferred units of $2.8 million. This was partially offset by receipt of $0.1 million and $11.7 million for the issuance of common and Series A preferred units, respectively, under our ATM program.

As a result of the foregoing, cash, cash equivalents and restricted cash decreased by $6.2 million for the three months ended June 30, 2019, while cash, cash equivalents and restricted cash decreased by $8.4 million for the three months ended June 30, 2018.

Qualitative and Quantitative Disclosures About Market Risk

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

Interest Rate Risk, Derivative Instruments and Cash Flow Hedges

Cash flow hedging strategy

The Partnership is exposed to fluctuations in cash flows from floating interest rate exposure on its long-term debt used principally to finance its vessels. Interest rate swaps are used for the management of the floating interest rate risk exposure. The interest rate swaps have the effect of converting a portion of the outstanding debt from a floating to a fixed rate over the life of the interest rate swaps. Interest rate swaps exchange a receipt of floating interest for a payment of fixed interest which reduce the exposure to interest rate variability on its outstanding floating-rate debt over the life of the interest rate swaps. As of June 30, 2019, there are interest rate swap agreements related to the Lampung facility ("Lampung interest rate swaps") and the commercial tranche of the $385 million facility floating rate debt ("$385 million interest rate swaps") that are designated as cash flow hedges for accounting purposes. As of June 30, 2018, there were interest rate swap agreements related to the Lampung, Gallant and Grace facilities floating rate debt that were designated as cash flow hedges for accounting purposes. As of January 31, 2019, the commercial and export credit tranches of the $385 million facility was drawn and financed the repayment of the Gallant and Grace facilities as of the same date. The interest rate swaps related to the Gallant and Grace facilities were also terminated on the same date.

As of June 30, 2019, the following interest rate swap agreements were outstanding:

Foreign Currency Risk

All financing, interest expenses from financing and most of our 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 six months ended June 30, 2019, and 2018, no derivative financial instruments have been used to manage foreign exchange risk.

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 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.

Concentration of Risk

Financial instruments, which potentially subject us 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. We do 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 under certain circumstances. No impairment loss was recorded for the three and six month periods ended June 30, 2019 and 2018 or the year ended December 31, 2018. While the maximum exposure to loss due to credit risk is the book value of trade receivables at the balance sheet date, should the time charter for the PGN FSRU Lampung, the Höegh Gallant or the Höegh Grace terminate prematurely, or the option to acquire the PGN FSRU Lampung be exercised, 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. Other financial items consist of gain (loss) on debt extinguishment, gain (loss) 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, depreciation and amortization, taxes, and other financial items, 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:

RISK FACTORS

In addition to the other information set forth in the Report on Form 6-K, you should carefully consider the risk factors set forth below, as well as the risk factors beginning on page 14 in our 2018 Annual Report.

As a Marshall Islands partnership with principal executive offices in Bermuda, and also having subsidiaries in the Marshall Islands and other offshore jurisdictions, our operations may be subject to economic substance requirements of the European Union, which could harm our business.

On December 5, 2017, following an assessment of the tax policies of various countries by the Code of Conduct Group for Business Taxation of the European Union (the “COCG”), the Council of the European Union (the “Council”) approved and published Council conclusions containing a list of “non-cooperative jurisdictions” for tax purposes (the “2017 Conclusions”). On March 12, 2019, the Council adopted a revised list of non-cooperative jurisdictions (the “2019 Conclusions”). In the 2019 Conclusions, Bermuda and the Republic of the Marshall Islands, among others, were placed by the E.U. on its list of non-cooperative jurisdictions for tax purposes for failing to implement certain commitments previously made to the E.U. by the agreed deadline. However, it was announced by the Council on May 17, 2019 that Bermuda had been removed from the list of non-cooperative tax jurisdictions. Also, although not considered a non-cooperative jurisdiction in the 2017 Conclusions, the Cayman Islands were listed as having a “tax regime that facilitates offshore structures which attract profits without real economic activity.” E.U. member states have agreed upon a set of measures, which they can choose to apply against the listed countries, including increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The European Commission has stated it will continue to support member states' efforts to develop a more coordinated approach to sanctions for the listed countries in 2019. E.U. legislation prohibits E.U. funds from being channeled or transited through entities in non-cooperative jurisdictions.  In July 2019, the Registrar of Corporations for the Republic of the Marshall Islands announced that the Republic of the Marshall Islands expects to be removed from the blacklist following the September and October meetings of the EU Code of Conduct Group and the Economic and Financial Affairs Council. However, it is not assured that such removal will occur at that time, or at all.

We are a Marshall Islands partnership with principal executive offices in Bermuda. Our operating company is also a Marshall Islands entity and several of our subsidiaries are organized in the Cayman Islands. At present, the impact of being included on the list of non-cooperative jurisdictions for tax purposes is unclear. These jurisdictions have enacted or may enact economic substance laws and regulations with which we may be obligated to comply. For example, on December 17, 2018, the House of Assembly of Bermuda passed the Economic Substance Act 2018 of Bermuda (the “Economic Substance Act”), which became operative on December 31, 2018, along with the Economic Substance Regulations 2018 of Bermuda. The Economic Substance Act requires each registered entity to maintain a substantial economic presence in Bermuda and provides that a registered entity that carries on a relevant activity complies with economic substance requirements if (i) it is directed and managed in Bermuda, (ii) its core income-generating activities (as may be further prescribed) are undertaken in Bermuda with respect to the relevant activity, (iii) it maintains adequate physical presence in Bermuda, (iv) it has adequate full time employees in Bermuda with suitable qualifications and (v) it incurs adequate operating expenditure in Bermuda in relation to the relevant activity. Additionally, new legislation adopted in the Cayman Islands (which came into force on January 1, 2019) requires certain entities that carry out particular activities to comply with an economic substance test whereby the entity must show that it (i) carries out activities that are of central importance to the entity from the Cayman Islands, (ii) has held an adequate number of its board meetings in the Cayman Islands when judged against the level of decision-making required and (iii) has an adequate (a) amount of operating expenditures in the Cayman Islands, (b) physical presence in the Cayman Islands and (c) number of full-time employees in the Cayman Islands. New regulations adopted in the Marshall Islands (which came into force on January 1, 2019) requires certain entities that carry out particular activities to comply with an economic substance test whereby the entity must show that it (i) is directed and managed in the Marshall Islands in relation to that relevant activity, (ii) carries out core income-generating activity in relation to that relevant activity in the Marshall Islands and (iii) having regard to the level of relevant activity carried out in the Marshall Islands has (a) an adequate amount of expenditures in the Marshall Islands, (b) adequate physical presence in the Marshall Islands and (c) an adequate number of qualified employees in the Marshall Islands.

If we fail to comply with our obligations under this legislation or any similar law applicable to us in any other jurisdictions, we could be subject to financial penalties and spontaneous disclosure of information to foreign tax officials, or could be struck from the register of companies, in related jurisdictions. Any of the foregoing could be disruptive to our business and could have a material adverse effect on our business, financial conditions and operating results.

We do not know: if the E.U. will remove the Marshall Islands from, or add the Cayman Islands to, the list of non-cooperative jurisdictions; what additional actions the Marshall Islands may take, if any, to remove itself from the list; how quickly the E.U. would react to any changes in legislation of the Marshall Islands; or how E.U. banks or other counterparties will react while we or any of our subsidiaries remain as entities organized and existing under the laws of listed countries. The effect of the E.U. list of non-cooperative jurisdictions, and any noncompliance by us with any legislation adopted by applicable countries to achieve removal from the list, could have a material adverse effect on our business, financial conditions and operating results.

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 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:

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.

INDEX TO THE FINANCIAL STATEMENTS

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF INCOME

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

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

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of U.S. dollars)

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

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
BALANCE SHEETS

(in thousands of U.S. dollars)