6-K 1 tm2116890d2_6k.htm FORM 6-K

 

 

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 March 31, 2021

 

Commission File Number 001-36588

 

Höegh LNG Partners LP

(Translation of registrant’s name into English)

 

Canon’s Court

22 Victoria Street

Hamilton, HM 12 Bermuda 

(Address of principal executive office)

 

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

 

Form 20-F  x   Form 40-F  ¨

  

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

 

Yes  ¨   No  x

  

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

 

Yes  ¨   No  x

 

 

 

 

 

 

HÖEGH LNG PARTNERS LP

 

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

 

Table of Contents

 

    Page
     
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   3
     
FORWARD LOOKING STATEMENTS   22
     
INDEX TO FINANCIAL STATEMENTS   F-1
     
Unaudited Condensed Interim Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020   F-2
     
Unaudited Condensed Interim Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020   F-3
     
Unaudited Condensed Interim Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020   F-4
     
Unaudited Condensed Interim Consolidated Statements of Changes in Partners’ Capital for the Three Months Ended March 31, 2021 and the Year Ended December 31, 2020   F-6
     
Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020   F-7
     
Notes to Unaudited Condensed Interim Consolidated Financial Statements   F-9
     
SIGNATURE    

 

2

 

 

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

 

The following is a discussion of our financial condition and results of operations for the three months ended March 31, 2021 and 2020. 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 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. and references to “Total Gas & Power” refer to Total Gas & Power Ltd, subsidiaries 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.

 

You should read this section in conjunction with the unaudited condensed interim consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 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 9, 2021 (our “2020 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

 

·Continued measures to mitigate the risks from the COVID-19 pandemic and ensure health and safety of crews and staff, whose wellbeing is our highest priority

 

  · No reported cases of COVID-19; 100% availability of FSRUs for the first quarter of 2021

 

  · Reported total time charter revenues of $34.8 million for the first quarter of 2021 compared to $36.7 million of time charter revenues for the first quarter of 2020

 

  · Generated operating income of $31.7 million, net income of $23.8 million and limited partners’ interest in net income of $20.0 million for the first quarter of 2021 compared to operating income of $13.4 million, net income of $5.5 million and limited partners' interest in net income of $1.8 million for the first quarter of 2020; operating income, net income and limited partners’ interest in net income were impacted by unrealized gains on derivative instruments for the first quarter of 2021 compared with unrealized losses for the first quarter of 2020 mainly on the Partnership's share of equity in earnings (losses) of joint ventures

 

  · On May 14, 2021, paid a $0.44 per unit distribution on common units with respect to the first quarter of 2021, equivalent to $1.76 per unit on an annualized basis

 

  · On May 17, 2021, paid a distribution of $0.546875 per 8.75% Series A cumulative redeemable preferred unit (the "Series A preferred units"), for the period commencing on February 15, 2021 to May 14, 2021

 

3

 

 

The Amalgamation

 

On March 8, 2021, Höegh LNG announced a recommended offer by Leif Höegh & Co. Ltd. (“LHC”) and funds managed by Morgan Stanley Infrastructure Partners (“MSIP”) through a 50/50 joint venture, Larus Holding Limited (“JVCo”), to acquire the remaining issued and outstanding shares of Höegh LNG not currently owned by LHC or its affiliates (the “Amalgamation”). The Amalgamation was approved by Höegh LNG's shareholders and bondholders and closed on May 4, 2021. Höegh LNG is now wholly owned by JVCo, and the common shares of Höegh LNG will be delisted from the Oslo Stock Exchange. Following the consummation of the Amalgamation, some provisions of the omnibus agreement entered into in connection with the IPO (the “omnibus agreement”) terminated by their terms, including (i) the prohibition on Höegh LNG from acquiring, owning, operating or chartering any Five-Year Vessels (as defined in the omnibus agreement), (ii) the prohibition on us from acquiring, owning, operating or chartering any Non-Five-Year Vessels (as defined in the omnibus agreement), and (iii) the rights of first offer associated with those rights. As a consequence, following the consummation of the Amalgamation, Höegh LNG is not required to offer us Five-Year Vessels and is permitted to compete with us.

 

Our results of operations

 

   Three months ended 
   March 31, 
(in thousands of U.S. dollars, except per unit amounts)  2021   2020 
Statement of Income Data:          
Time charter revenues  $34,776   $36,686 
Total revenues   34,776    36,686 
Vessel operating expenses   (6,172)   (5,507)
Administrative expenses   (2,735)   (2,428)
Depreciation and amortization   (5,210)   (5,282)
Total operating expenses   (14,117)   (13,217)
Equity in earnings (losses) of joint ventures   11,073    (10,047)
Operating income (loss)   31,732    13,422 
Interest income   133    172 
Interest expense   (5,658)   (6,511)
Other items, net   (653)   (647)
Income (loss) before tax   25,554    6,436 
Income tax expense   (1,716)   (962)
Net income (loss)  $23,838   $5,474 
Preferred unitholders' interest in net income   3,877    3,668 
Limited partners’ interest in net income (loss)  $19,961   $1,806 
           
Earnings per unit:          
Common unit public (basic and diluted)  $0.59   $0.04 
Common unit Höegh LNG (basic and diluted)  $0.61   $0.07 
Cash Flow Data:          
Net cash provided by (used in) operating activities  $16,152   $14,011 
Net cash provided by (used in) investing activities  $   $ 
Net cash provided by (used in) financing activities  $(20,985)  $(27,753)
Other Financial Data:          
Segment EBITDA(1)  $34,457   $36,126 

 

 

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

 

4

 

 

Three Months ended March 31, 2021 Compared with the Three Months ended March 31, 2020

 

Time charter revenues. The following table sets forth details of our time charter revenues for the three months ended March 31, 2021 and 2020:

  

       Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Time charter revenues  $34,776   $36,686   $(1,910)

   

Time charter revenues for the three months ended March 31, 2021 were $34.8 million, a decrease of $1.9 million from $36.7 million for the three months ended March 31, 2020. The decrease was mainly due to lower time charter revenue for the Höegh Gallant for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. On May 1, 2020, the Höegh Gallant commenced the Subsequent Charter (as described below) with a subsidiary of Höegh LNG. The hire rate under the Subsequent Charter is lower than under the prior time charter, resulting in lower time charter revenues for the Höegh Gallant for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. In addition, time charter revenues were lower for all the FSRUs due to the extra day in the first quarter of 2020 due to the leap year.

 

Time charter revenues for the PGN FSRU Lampung consist of the lease element of the time charter, accounted for as a 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.

 

On April 30, 2020, the Partnership entered into a lease and maintenance agreement (the “Subsequent Charter”) with a subsidiary of Höegh LNG for the time charter of the Höegh Gallant. The hire rate under the Subsequent Charterer is equal to 90% of the rate payable pursuant to the prior charter of the Höegh Gallant, subject to certain adjustments for i) avoided FSRU related costs only when operating in LNG carrier mode and ii) higher incremental taxes and operating expenses when operating in FSRU mode. The Subsequent Charter commenced on May 1, 2020 and expires on July 31, 2025.

 

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the three months ended March 31, 2021 and 2020:  

 

   Three months ended March 31,   Positive (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Vessel operating expenses  $(6,172)  $(5,507)  $(665)

 

Vessel operating expenses for the three months ended March 31, 2021 were $6.2 million, an increase of $0.7 million from the three months ended March 31, 2020. The increase reflects higher operating expenses for the PGN FSRU Lampung and the Höegh Grace for the three months ended March 31, 2021 compared with the corresponding period of 2020, as well as less need for spare parts and lower use of external services in 2020.

 

5

 

  

Administrative Expenses. The following table sets forth details of our administrative expenses for the three months ended March 31, 2021 and 2020: 

 

   Three months ended March 31,   Positive (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Administrative expenses  $(2,735)  $(2,428)  $(307)

 

Administrative expenses for the three months ended March 31, 2021 were $2.7 million, an increase of $0.3 million from $2.4 million for the three months ended March 31, 2020. The increase mainly reflects increased administrative activities for the three months ended March 31, 2021 compared with the three months ended March 31, 2020.

 

Depreciation and Amortization. The following table sets forth details of our depreciation and amortization for the three months ended March 31, 2021 and 2020:

 

       Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Depreciation and amortization  $(5,210)  $(5,282)  $72 

 

Depreciation and amortization for the three months ended March 31, 2021 were $5.2 million, a decrease of $0.1 million compared to the three months ended March 31, 2020.

 

Total Operating Expenses. The following table sets forth details of our total operating expenses for the three months ended March 31, 2021 and 2020:  

 

       Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Total operating expenses  $(14,117)  $(13,217)  $(900)

 

Total operating expenses for the three months ended March 31, 2021 were $14.1 million, an increase of $0.9 million from $13.2 million for the three months ended March 31, 2020. The increase is principally due to higher vessel operating expenses and administrative expenses for the three months ended March 31, 2021 compared with the three months ended March 31, 2020.

 

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 March 31, 2021 and 2020:

 

   Three months ended March 31,   Positive (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Equity in earnings (losses) of joint ventures  $11,073   $(10,047)  $21,120 

 

Equity in earnings of joint ventures for the three months ended March 31, 2021 was $11.1 million, an increase of $21.1 million from equity in losses of joint ventures for the three months ended March 31, 2020 of $10.0 million.

 

Excluding the unrealized gains on derivative instruments for the three months ended March 31, 2021 and excluding the unrealized losses on derivative instruments for the three months ended March 31, 2020, the equity in earnings of joint ventures would have been $3.4 million for the three months ended March 31, 2021, an increase of $1.7 million compared to equity in earnings of joint ventures of $1.7 million for the three months ended March 31, 2020. The increase primarily relates to lower operating expenses and other financial expenses for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

 

Our share of our joint ventures’ operating income was $6.1 million for the three months ended March 31, 2021, an increase of $1.2 million compared to $4.9 million for the three months ended March 31, 2020. 

 

6

 

 

Our share of other income (expense), net, principally consisting of interest expense, was $2.7 million for the three months ended March 31, 2021, a decrease of $0.3 million from $3.0 million for the three months ended March 31, 2020.

 

Our share of unrealized gain on derivative instruments was $7.7 million for the three months ended March 31, 2021, an increase of $19.5 million from the unrealized loss on derivative instruments of $11.8 million for the three months ended March 31, 2020.

 

Accrued income tax expense for the three months ended March 31, 2020 was $0.1 million.

 

Operating Income (Loss). The following table sets forth details of our operating income (loss) for the three months ended March 31, 2021 and 2020:

 

           Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Operating income (loss)  $31,732   $13,422   $18,310 

 

Operating income for the three months ended March 31, 2021 was $31.7 million, an increase of $18.3 million from operating income of $13.4 million for the three months ended March 31, 2020. Excluding the impact of the unrealized gains (losses) on derivatives for the three months ended March 31, 2021 and 2020 impacting the equity in earnings (losses) of joint ventures, operating income would have been $24.1 million for the three months ended March 31, 2021, a decrease of $1.1 million from $25.2 million for the three months ended March 31, 2020.

 

Interest Income. The following table sets forth details of our interest income for the three months ended March 31, 2021 and 2020:

 

           Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Interest income  $133   $172   $(39)

  

Interest income for the three months ended March 31, 2021 was $0.1 million compared to $0.2 million for the three months ended March 31, 2020. Interest income is mainly related to interest on cash balances and interest accrued on the advances to our joint ventures for the three months ended March 31, 2021 and 2020, respectively. The interest rate under the shareholder loans to the joint ventures is a fixed rate of 8.0% per year.

 

Interest Expense. The following table sets forth details of our interest expense for the three months ended March 31, 2021 and 2020:

 

           Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Interest expense  $(5,056)  $(5,793)  $737 
Amortization and gain (loss) on cash flow hedge   (45)   (91)   46 
Commitment fees   (34)   (34)    
Amortization of debt issuance cost   (523)   (593)   70 
Total interest expense  $(5,658)  $(6,511)  $853 

  

Total interest expense for the three months ended March 31, 2021 was $5.7 million, a decrease of $0.8 million from $6.5 million for the three months ended March 31, 2020. Interest expense consists of the interest incurred, amortization and gain (loss) on cash flow hedge, commitment fees and amortization of debt issuance cost.

 

7

 

 

The interest incurred for the three months ended March 31, 2021 was $5.1 million, decreased by $0.7 million compared to $5.8 million for the three months ended March 31, 2020. The decrease was principally due to the repayment of outstanding loan balances for the loan facilities related to the PGN FSRU Lampung (the "Lampung facility") and the $385 million facility.

 

Amortization and gain (loss) on cash flow hedge was a loss for both the three months ended March 31, 2021 and 2020. For the three months ended March 31, 2021 and 2020, the loss solely related to amortization of the amounts excluded from hedge effectiveness for discontinued hedges and the initial fair values of interest rate swaps.

 

The commitment fees relate to the undrawn portion of the revolving credit tranche under the $385 million facility.

 

Amortization of debt issuance cost was $0.5 million for the three months ended March 31, 2021, compared to $0.6 million for the three months ended March 31, 2020.

 

Other Items, Net. The following table sets forth details of our other items, net for the three months ended March 31, 2021 and 2020:

  

           Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   Variance 
Foreign exchange gain (loss)  $(19)  $48   $(67)
Bank charges, fees and other   (54)   (85)   31 
Withholding tax on interest expense and other   (580)   (610)   30 
Total other items, net  $(653)  $(647)  $(6)

 

Other items, net, were $0.7 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively.

 

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the three months ended March 31, 2021 and 2020:

 

           Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Income (loss) before tax  $25,554   $6,436   $19,118 

 

Income before tax for the three months ended March 31, 2021 was $25.6 million, an increase of $19.1 million from $6.4 million for the three months ended March 31, 2020. The income before tax for both periods was impacted by unrealized gains (losses) on derivative instruments mainly on the Partnership’s share of equity in earnings (losses) of joint ventures. Excluding all the unrealized gains and losses on derivative instruments, income before tax for the three months ended March 31, 2021 was $17.9 million, a decrease of $0.3 million from $18.2 million for the three months ended March 31, 2020. Excluding the unrealized gains (losses) on derivative instruments, the decrease is mainly due to lower time charter revenues and higher vessel operating expenses partially offset by lower interest expense for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

 

8

 

 

Income Tax Expense. The following table sets forth details of our income tax expense for the three months ended March 31, 2021 and 2020:

 

           Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Income tax expense  $(1,716)  $(962)  $(754)

 

Income tax expense for the three months ended March 31, 2021 was $1.7 million, an increase of $0.7 million compared to $1.0 million for the three months ended March 31, 2020. The tax rate decreased from 25% for 2019 to 22% for 2020 and 2021 with further reductions to occur thereafter. There was a one time positive impact from the reduced tax rate recognized in the tax expense for the three months ended March 31, 2020. For the three months ended March 31, 2021 and 2020, the income tax expense principally related to subsidiaries in Indonesia, Singapore and Colombia. The Singapore subsidiary’s taxable income mainly arises from internal interest income. The charterer in Colombia pays certain taxes directly to the Colombian tax authorities on behalf of the Partnership’s subsidiaries that own and operate the Höegh Grace. The tax payments are a mechanism for advance collection of part of the income taxes for the Colombian subsidiary and a final income tax on Colombian source income for the non-Colombian subsidiary. We concluded these third-party payments to the tax authorities represent income taxes that must be accounted for under the guidance for income taxes. The amount of non-cash income tax expense was $0.2 million for each of the three months ended March 31, 2021 and 2020.

 

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 March 31, 2021 and 2020, there were increases in uncertain tax positions of $0.04 million and $0.1 million, respectively. As of both March 31, 2021 and December 31, 2020, the unrecognized tax benefits were $2.7 million.

 

Net Income (Loss). The following table sets forth details of our net income (loss) for the three months ended March 31, 2021 and 2020:

  

           Positive 
   Three months ended March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Net income (loss)  $23,838   $5,474   $18,364 
Preferred unitholders' interest in net income   3,877    3,668    209 
Limited partners’ interest in net income (loss)  $19,961   $1,806   $18,155 

  

As a result of the foregoing, net income for the three months ended March 31, 2021 was $23.8 million, an increase of $18.4 million from net income of $5.5 million for the three months ended March 31, 2020. For the three months ended March 31, 2021, net income of $3.9 million was attributable to the holders of the Series A preferred units, an increase of $0.2 million from $3.7 million due to additional Series A preferred units issued as part of our at-the-market offering program (“ATM program”). Our limited partners' interest in net income for the three months ended March 31, 2021 was $20.0 million, an increase of $18.2 million from limited partners’ interest in net income of $1.8 million for the three months ended March 31, 2020.

 

9

 

 

Segments

 

There are two operating segments. The segment profit measure is Segment EBITDA, which is defined as earnings before interest, taxes, depreciation, amortization, impairment 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 three months ended March 31, 2021 and 2020, Majority held FSRUs includes the financing lease related to the PGN FSRU Lampung and the operating leases related to the Höegh Gallant and the Höegh Grace.

 

For the three months ended March 31, 2021 and 2020, 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 three months ended March 31, 2021 and 2020:

 

   Three months ended   Positive 
Majority Held FSRUs  March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Time charter revenues  $34,776   $36,686   $(1,910)
Vessel operating expenses   (6,172)   (5,507)   (665)
Administrative expenses   (813)   (723)   (90)
Segment EBITDA   27,791    30,456    (2,665)
Depreciation and amortization   (5,210)   (5,282)   72 
Operating income (loss)   22,581    25,174    (2,593)
Other financial income (expense), net   (2,114)   (2,544)   430 
Income (loss) before tax   20,467    22,630    (2,163)
Income tax expense   (1,716)   (962)   (754)
Net income (loss)  $18,751   $21,668   $(2,917)

 

Time charter revenues for the three months ended March 31, 2021 were $34.8 million, a decrease of $1.9 million from the three months ended March 31, 2020. As discussed above, the decrease was mainly due to lower time charter revenue for the Höegh Gallant as a result of a lower time charter rates in the Subsequent Charter and also lower time charter revenue on all three FSRUs due to an extra day during the quarter ended March 31, 2020 due to the leap year.

 

Vessel operating expenses for the three months ended March 31, 2021 were $6.2 million compared to $5.5 million for the three months ended March 31, 2020. The increase reflects higher operating expenses for the PGN FSRU Lampung and the Höegh Grace for the three months ended March 31, 2021 compared with the corresponding period of 2020.

  

Administrative expenses for the three months ended March 31, 2021 were $0.8 million, an increase of $0.1 million from $0.7 million for the three months ended March 31, 2020.

 

Segment EBITDA for the three months ended March 31, 2021 was $27.8 million, a decrease of $2.7 million from $30.5 million for the three months ended March 31, 2020.

 

10

 

 

Joint venture FSRUs. The following table sets forth details of segment results for the Joint venture FSRUs for the three months ended March 31, 2021 and 2020:

 

   Three months ended   Positive 
Joint Venture FSRUs  March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Time charter revenues  $10,459   $10,527   $(68)
Vessel operating expenses   (1,717)   (2,785)   1,068 
Administrative expenses   (154)   (367)   213 
Segment EBITDA   8,588    7,375    1,213 
Depreciation, amortization and impairment   (2,492)   (2,495)   3 
Operating income (loss)   6,096    4,880    1,216 
Gain (loss) on derivative instruments   7,673    (11,784)   19,457 
Other income (expense), net   (2,696)   (3,031)   335 
Income (loss) before tax   11,073    (9,935)   21,008 
Income tax expense       (112)   112 
Net income (loss)  $11,073   $(10,047)  $21,120 

 

Total time charter revenues were $10.5 million for the three months ended March 31, 2021 and 2020.

 

Vessel operating expenses were $1.7 million for the three months ended March 31, 2021, a decrease of $1.1 million compared to $2.8 million for the three months ended March 31, 2020. The decrease in vessel operating expenses was mainly due to higher expenses for the Cape Ann for the three months ended March 31, 2020 due to the charterer’s project in India, including accrued indirect taxes. Such indirect taxes and accrued income tax expense will become reimbursable by the charterer when the Indian tax filings are made, pending final clarification of the tax status of the project. Vessel operating expenses also decreased for the Neptune primarily as a result of higher costs incurred for charterer’s projects in the three months ended March 31, 2020.

 

Administrative expenses for the three months ended March 31, 2021 were $0.2 million, a decrease of $0.2 million from $0.4 million for the three months ended March 31, 2020.

  

Segment EBITDA was $8.6 million for the three months ended March 31, 2021, an increase of $1.2 million compared with $7.4 million for the three months ended March 31, 2020.

 

The income tax expense of $0.1 million related to the India project for the three months ended March 31, 2020.

 

Other. The following table sets forth details of other results for the three months ended March 31, 2021 and 2020:

 

   Three months ended   Positive 
Other  March 31,   (negative) 
(in thousands of U.S. dollars)  2021   2020   variance 
Administrative expenses  $(1,922)  $(1,705)  $(217)
Segment EBITDA   (1,922)   (1,705)   (217)
Operating income (loss)   (1,922)   (1,705)   (217)
Other financial income (expense), net   (4,064)   (4,442)   378 
Income (loss) before tax   (5,986)   (6,147)   161 
Income tax expense            
Net income (loss)  $(5,986)  $(6,147)  $161 

 

11

 

  

Administrative expenses and Segment EBITDA for the three months ended March 31, 2021 were $1.9 million, an increase of $0.2 million from $1.7 million for the three months ended March 31, 2020. The increase was mainly due to increased administrative activities for the three months ended March 31, 2021 compared with the three months ended March 31, 2020.

 

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, other financial income (expense), net also includes interest incurred, commitment fees and amortization of debt issuance costs, related to the $385 million facility.

 

Other financial income (expense), net was an expense of $4.1 million for the three months ended March 31, 2021, a decrease of $0.3 million from a $4.4 million expense for the three months ended March 31, 2020. The decrease was principally due to lower interest expense on the $385 million facility for the three months ended March 31, 2021 compared with March 31, 2020 due to repayments made on the facility.

 

12

 

 

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 of $60.8 million under the $85 million revolving credit facility from Höegh LNG and our undrawn balance of $14.7 million under the $63 million revolving credit tranche of our $385 million facility as of May 27, 2021, 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 boil-off settlement" to the unaudited condensed interim consolidated financial statements and further below, the joint ventures recorded accruals for the probable liability for the 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 were 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 8 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 in capital. The dividend can only be distributed if PT Höegh’s retained earnings are positive after deducting the statutory reserve. As of March 31, 2021, PT Höegh is in the process of establishing the required statutory reserves and therefore is currently unable to make dividend payments 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 coverage ratio of 1.20 to 1.00, PT Höegh can distribute cash from its cash flow from operations to us as payment of intercompany accrued interest and/or intercompany debt, after quarterly payments of the Lampung facility and fulfilment of the “waterfall” provisions to meet operating requirements as defined by the Lampung facility. Under Cayman Islands law, Höegh FSRU 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 12 and 14 to the audited consolidated financial statements contained in our 2020 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.

 

13

 

 

As of March 31, 2021, the Partnership has no material commitments for capital expenditures. However, during the first quarter of 2021, part of the procedures for the on-water class renewal survey for the Höegh Grace were performed. No off-hire is expected during the second quarter of 2021. The remainder of the on-water class renewal survey is expected to be completed during the second quarter of 2021. Incurred expenditures of approximately $1.0 million has been included within prepaid expenses and other receivables as of March 31, 2021, in connection with the survey.

  

As discussed in “—Three Months ended March 31, 2021 Compared with Three Months ended March 31, 2020—Time Charter Revenues” above, we entered into the Subsequent Charter on April 30, 2020 under which the Höegh Gallant is chartered by a subsidiary of Höegh LNG. The Subsequent Charter provides for a daily charter rate equal to 90% of the rate payable under the previous charter for the Höegh Gallant, subject to certain adjustments for avoided or incremental cost, which will reduce the Partnership’s future revenues and cash flows from the operation of the Höegh Gallant. The Subsequent Charterer commenced on May 1, 2020 and will expire in July 2025.

 

Höegh LNG’s ability to make payments to us under the Subsequent Charter and funding requests under the revolving credit facility and any claims for indemnification may be affected by events beyond the control of Höegh LNG or us, including opportunities to obtain new employment for the Höegh Gallant and 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 under the Subsequent Charter or meet funding requests or indemnification obligations, our financial condition, results of operations and ability to make cash distributions to unitholders could be materially adversely affected.

 

The outbreak of Coronavirus (COVID-19) has negatively affected economic conditions in many parts of the world which may impact our operations and the operations of our customers and suppliers. Although our operations have not been materially affected by the COVID-19 outbreak to date, the ultimate length and severity of the COVID-19 outbreak and its potential impact on our operations and financial condition is uncertain at this time. We believe our primary risk and exposure related to uncertainty of cash flows from our long-term time charter contracts is due to the credit risk associated with the individual charterers. Payments are due under time charter contracts regardless of the demand for the charterer’s gas output or the utilization of the FSRU. It is therefore possible that charterers may not make payments for time charter invoices in times of reduced demand. As of May 27, 2021, we have not experienced any reduced or non-payments for obligations under our time charter contracts. In addition, we have not provided concessions or made changes to the terms of payment for our customers. Furthermore, should there be an outbreak of the COVID-19 on board one of our FSRUs or an inability to replace critical supplies or replacement parts due to disruptions to third-party suppliers, adequate crewing or supplies may not be available to fulfill our obligations under our time charter contracts. This could result in off-hire or warranty payments under performance guarantees which would reduce revenues for the impacted period. To date, we have mitigated the risk of an outbreak of the COVID-19 on board our vessels by extending time between crew rotations on the vessels and developing mitigating actions for crew rotations. As a result, we expect that we will incur somewhat higher crewing expenses to ensure appropriate mitigating actions are in place to minimize risks of outbreaks. To date, we have not had service interruptions on our FSRUs. Management and administrative staffs have largely transitioned to working remotely from home to address the specific COVID-19 situation in the applicable geographic location. We have supported staffs by supplying needed internet boosters and office equipment to facilitate an effective work environment. In addition, if financial institutions providing our interest rate swaps or lenders under our revolving credit facility are unable to meet their obligations, we could experience higher interest expense or be unable to obtain funding. From the commencement of the ATM program in January 2018 until May 27, 2021, we have sold Series A preferred units and common units for total net proceeds of $69.6 million which has supplemented our liquidity. In current market conditions with lower unit prices, sales under the ATM program are a less viable and more expensive option for accessing liquidity. If our charterers or lenders are unable to meet their obligations to us under their respective contracts or if we are unable to fulfill our obligations under time charters, our financial condition, results of operations and ability to make cash distributions to unitholders could be materially adversely affected. The commercial tranche of the Lampung facility becomes due in October 2021 and the export credit tranche can be called if the commercial tranche is not refinanced. To address the liquidity needs, the Partnership is at an advanced stage of the process to refinance the Lampung facility. As of May 27, 2021, the loan documentation had been finalized and is now subject to satisfaction of closing conditions before drawdown. We currently expect the refinancing to be completed before the due date of the commercial tranche in October 2021. In addition, planning has commenced in relation to the refinancing of the Neptune facility which matures and becomes payable by our Joint Ventures in November 2021. However, should we be unable to satisfy the conditions to close the new Lampung facility or to obtain refinancing for the Neptune facility or our other debt maturities on a timely basis or at all, we may not have sufficient funds or other assets to satisfy all our obligations, which would have a material adverse effect on our business, results of operations, financial condition and ability to make distributions to unitholders.

 

 

14

 

  

As of March 31, 2021, the total outstanding principal on our long-term debt was $428.5 million related to the Lampung facility, the $385 million facility, including the associated $63 million revolving credit tranche, and the $85 million revolving credit facility. The book value of our total long-term debt was $422.1 million as of March 31, 2021. On May 7, 2021, we drew $6.0 million on the $85 million revolving credit facility. For a description of our credit facilities and revolving credit facilities, please see notes 12 and 14 to the audited consolidated financial statements contained in our 2020 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 March 31, 2021. As of March 31, 2021, we had outstanding interest rate swap agreements for a total notional amount of $315.6 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 March 31, 2021, we had cash and cash equivalents of $27.1 million. Current restricted cash for operating obligations of the PGN FSRU Lampung was $7.1 million and long-term restricted cash required under the Lampung facility was $12.0 million as of March 31, 2021.

 

As of May 27, 2021, we had an undrawn balance of $14.7 million on the $63 million revolving credit tranche of the $385 million facility and an undrawn balance of $60.8 million on the $85 million revolving credit facility from Höegh LNG, respectively.

 

As of March 31, 2021, the Partnership's total current liabilities exceeded total current assets by $22.1 million. This is partly a result of the current portion of long-term debt of $58.1 million being classified as current while restricted cash of $12.0 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, and the balloon payment on the commercial tranche of the Lampung facility that is due in October 2021. As described above, we expect to refinance the Lampung facility before the maturity date. 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. We believe our available undrawn balances on the $85 million revolving credit facility from Höegh LNG and the $63 million revolving credit tranche will provide us with adequate liquidity reserves to fund general liquidity needs. Assuming the refinancing of the Lampung facility on a timely basis, we believe our current resources, including the undrawn balances on the $85 million revolving credit facility from Höegh LNG and the $63 million revolving credit tranche, are sufficient to meet our working capital requirements for our current business for the next twelve months.

  

On February 12, 2021, the Partnership paid a distribution of $15.1 million, or $0.44 per common unit, with respect to the fourth quarter of 2020.

 

On February 16, 2021, the Partnership paid a distribution of $3.9 million, or $0.546875 per Series A preferred unit, for the period commencing on November 15, 2020 to February 14, 2021.

  

On May 7, 2021, the Partnership drew $6.0 million on the $85 million revolving credit facility from Höegh LNG.

 

On May 14, 2021, the Partnership paid a distribution of $15.1 million, or $0.44 per common unit, with respect to the first quarter of 2021.

 

On May 17, 2021 the Partnership paid a distribution of $3.9 million, or $0.546875 per Series A preferred unit, for the period commencing on February 15, 2021 to May 14, 2021.

 

For the period from April 1, 2021 to May 27, 2021, no Series A preferred units or common units were sold under our ATM program. We sold 336,992 Series A preferred units and 52,603 common units under the ATM program in the first quarter of 2021. From the commencement of the Prior ATM program in January 2018 through March 31, 2021, we have sold 2,489,325 Series A preferred units and 358,869 common units and received net proceeds of $63.2 million and $6.4 million, respectively. The compensation paid to the Agent for such sales was $1.3 million.

 

15

 

 

Cash Flows

 

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

 

   Three months ended 
   March 31, 
(in thousands of U.S. dollars)  2021   2020 
Net cash provided by (used in) operating activities  $16,152   $14,011 
Net cash provided by (used in) investing activities        
Net cash provided by (used in) financing activities   (20,985)   (27,753)
Increase (decrease) in cash, cash equivalents and restricted cash   (4,833)   (13,742)
Effect of exchange rate changes on cash, cash equivalents and restricted cash   (50)   (103)
Cash, cash equivalents and restricted cash, beginning of period   51,063    59,819 
Cash, cash equivalents and restricted cash, end of period  $46,180   $45,974 

 

Net Cash Provided by (Used in) Operating Activities

 

Net cash provided by operating activities was $16.2 million for the three months ended March 31, 2021, an increase of $2.2 million compared with $14.0 million for the three months ended March 31, 2020. Before changes in working capital, cash provided by operating activities was $20.9 million for the three months ended March 31, 2021, a decrease of $2.4 million compared to $23.3 million for the three months ended March 31, 2020.

 

Changes in working capital decreased net cash provided by operating activities by $4.7 million for the three months ended March 31, 2021, a decrease of $4.6 million from the negative contribution of $9.3 million for the three months ended March 31, 2020. For the three months ended March 31, 2021, the negative contribution of changes in working capital was largely due to cash used in funding trade receivables, prepaid expenses and other receivables as well as and settling balances for value added and withholding tax liability which was partially offset by an increase in the balance for accrued liabilities and other payables. For the three months ended March 31, 2020, the negative contribution of changes in working capital was largely due to cash used in funding trade receivables, prepaid expenses and other receivables and settling balances for accrued liabilities and other payables and value added and withholding tax liability. 

 

Net Cash Provided by (Used in) Investing Activities

 

There was no net cash provided by or used in investing activities for the three months ended March 31, 2021 and 2020.

 

Net Cash Provided by (Used in) Financing Activities

 

Net cash used in financing activities for the three months ended March 31, 2021 was $21.0 million compared with $27.8 million for the three months ended March 31, 2020.

 

16

 

 

Net cash used in financing activities for the three months ended March 31, 2021 was mainly due to the repayment of long-term debt of $11.2 million which includes quarterly repayment of $4.8 million on the Lampung facility and quarterly repayments of $6.4 million the $385 million facility and our payment of cash distributions to our common unit holders of $15.1 million and our payment of cash distributions to the holders of our Series A preferred units of $3.9 million. This was partially offset by proceeds of $0.8 million and $8.3 million for the issuance of common and Series A preferred units, respectively.

 

Net cash used in financing activities for the three months ended March 31, 2020 was mainly due to the repayment of long-term debt of $11.2 million which includes quarterly repayment of $4.8 million on the Lampung facility and quarterly repayment of $6.4 million on the $385 million facility and our payment of cash distributions to our common unitholders of $15.0 million and our payment of cash distributions to the holders of our Series A preferred units of $3.7 million. This was partially offset by proceeds of $2.1 million for the issuance of common and Series A preferred units under our ATM program.

 

As a result of the foregoing, cash, cash equivalents and restricted cash decreased by $4.8 million for the three months ended March 31, 2021 compared to a decrease of $13.7 million for the three months ended March 31, 2020.

 

17

 

 

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

 

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 March 31, 2021 and 2020, there were 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 March 31, 2021, the following interest rate swap agreements were outstanding:

 

          Fair        
          value      Fixed 
   Interest      carrying      interest 
   rate  Notional   amount      rate 
(in thousands of U.S. dollars)  index  amount   liability   Term  (1) 
LIBOR-based debt                     
Lampung interest rate swaps (2)  LIBOR  $93,194    (4,440)  Sept 2026   2.8%
$385 million facility swaps (2)  LIBOR  $55,608    (4,227)  Jan 2026   2.9%
$385 million facility swaps (2)  LIBOR  $55,608    (3,969)  Oct 2025   2.8%
$385 million facility swaps (2)  LIBOR  $55,608    (3,807)  Jan 2026   2.7%
$385 million facility swaps (2)  LIBOR  $55,608    (3,635)  Jan 2026   2.7%

 

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

 

Foreign Exchange 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 three months ended March 31, 2021, and 2020, no derivative financial instruments have been used to manage foreign exchange risk.

 

18

 

 

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, amounts due from affiliates, net investment in financing lease and interest rate swap agreements. Further, the Partnership has future exposure for Höegh LNG’s ability to make payments to the Partnership for the technical modifications of the vessels and any prospective boil-off claims or other direct impacts of the boil-off settlement agreement. 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’ or counterparty’s financial condition. PGN guarantees PGN LNG's obligations under the PGN FSRU Lampung time charter. Höegh LNG provides a guarantee for its subsidiary’s payment obligations under the Subsequent 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, amounts due from affiliates 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. 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 charters for the PGN FSRU Lampung, or the Höegh Grace terminate prematurely, Höegh LNG terminate prematurely the Subsequent Charter, or the option to acquire the PGN FSRU Lampung be exercised, there could be delays in obtaining new time charters and the hire rates could be lower depending upon the prevailing market conditions.

 

19

 

 

Non-GAAP Financial Measure

 

Segment EBITDA. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Segment EBITDA is defined as earnings before interest, taxes, depreciation, amortization, impairment 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, amortization, impairment, 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 or preferred 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: 

 

   Three months ended March 31, 2021 
       Joint venture                 
   Majority   FSRUs       Total         
   held   (proportional       Segment       Consolidated 
(in thousands of U.S. dollars)  FSRUs   consolidation)   Other   reporting   Eliminations(1)   reporting 
Reconciliation to net income (loss)                              
Net income (loss)  $18,751    11,073    (5,986)   23,838        $23,838(3)
Interest income   (50)       (83)   (133)    (4)   (133)
Interest expense   1,563    2,692    4,095    8,350    (2,692)(4)   5,658 
Depreciation, amortization and impairment   5,210    2,492        7,702    (2,492)(5)   5,210 
Other financial items (2)   601    (7,669)   52    (7,016)   7,669 (6)   653 
Income tax (benefit) expense   1,716            1,716        1,716 
Equity in earnings of JVs:
Interest (income) expense, net
                   2,692 (4)   2,692 
Equity in earnings of JVs:
Depreciation, amortization and impairment
                   2,492 (5)   2,492 
Equity in earnings of JVs:
Other financial items (2)
                   (7,669)(6)   (7,669)
Segment EBITDA  $27,791    8,588    (1,922)   34,457        $34,457 

 

20

 

 

   Three months ended March 31, 2020 
(in thousands of U.S. dollars)  Majority
held
FSRUs
   Joint venture
FSRUs
(proportional
consolidation)
   Other   Total
Segment
reporting
   Eliminations
(1)
   Consolidated
reporting
 
Reconciliation to net income (loss)                              
Net income (loss)  $21,668    (10,047)   (6,147)   5,474        $5,474(3)
Interest income   (60)   (51)   (112)   (223)   51 (4)   (172)
Interest expense   1,997    3,079    4,514    9,590    (3,079)(4)   6,511 
Depreciation and amortization   5,282    2,495        7,777    (2,495)(5)   5,282 
Other financial items (2)   607    11,787    40    12,434    (11,787)(6)   647 
Income tax (benefit) expense   962    112        1,074    (112)(7)   962 
Equity in earnings of JVs: Interest (income) expense, net                   3,028 (4)   3,028 
Equity in earnings of JVs: Depreciation, amortization and impairment                   2,495 (5)   2,495 
Equity in earnings of JVs: Other financial items                   11,787 (6)   11,787 
Equity in earnings of JVs: Income tax (benefit) expense                   112 (7)   112 
Segment EBITDA  $30,456    7,375    (1,705)   36,126        $36,126 

 

(1) Eliminations reverse each of the income statement reconciling line items of the proportional amounts for Joint venture FSRUs that are reflected in the consolidated net income for the Partnership's share of the Joint venture FSRUs net income (loss) on the Equity in earnings (loss) of joint ventures line item in the consolidated income statement. Separate adjustments from the consolidated net income to Segment EBITDA for the Partnership's share of the Joint venture FSRUs are included in the reconciliation lines starting with “Equity in earnings of JVs.” 
(2) Other financial income consists of gains and losses on derivative financial instruments and other items, net including foreign exchange gains or losses and withholding tax on interest expense.
(3) There is no adjustment between net income for Total Segment reporting and the Consolidated reporting because the net income under the proportional consolidation and equity method of accounting is the same.
(4) Interest income and interest expense for the Joint venture FSRUs is eliminated from the Total Segment reporting to agree to the interest income and interest expense in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Interest (income) expense for the Consolidated reporting.
(5) Depreciation, amortization and impairment for the Joint venture FSRUs is eliminated from the Total Segment reporting to agree to the depreciation and amortization in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Depreciation, amortization and impairment for the Consolidated reporting.
(6) Other financial items for the Joint venture FSRUs is eliminated from the Segment reporting to agree to the Other financial items in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Other financial items for the Consolidated reporting.
(7) Income tax (benefit) expense for the Joint venture FSRUs is eliminated from the Segment reporting to agree to the Income tax (benefit) expense in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Income tax (benefit) expense for the Consolidated reporting.

 

21

 

 

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:

 

  · the effects of outbreaks of pandemic or contagious diseases, including the length and severity of the recent worldwide outbreak of COVID-19, including its impact on our business liquidity, cash flows and operations as well as operations of our customers, suppliers and lenders;
     
  · market conditions and trends for floating storage and regasification units (“FSRUs”) and liquefied natural gas (“LNG”) carriers, including hire rates, vessel valuations, technological advancements, market preferences and factors affecting supply and demand of LNG, LNG carriers, and FSRUs;

 

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

 

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

 

  · the ability of Höegh LNG to meet its financial obligations to us pursuant to the Subsequent Charter and its guarantee and indemnification obligations;

 

  · the change in the ability of Höegh LNG to compete with us as a result of its completion of the Amalgamation;

 

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

 

  · demand in the FSRU sector or the LNG shipping sector, including demand for our vessels;

 

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

 

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

 

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

 

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

 

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

 

  · the effect of the worldwide economic environment;

 

  · turmoil in the global financial markets;

 

  · fluctuations in currencies and interest rates;

 

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

 

  · changes in our operating expenses, including drydocking, on-water class surveys, insurance costs and bunker costs;

 

22

 

 

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

 

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

 

  · our ability to replace existing borrowings (including the Lampung facility and the Neptune facility), make additional borrowings and to access public equity and debt capital markets;

 

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

 

  · the exercise of purchase options by our customers;

 

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

 

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

  

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

 

  · the operating performance of our vessels and any related claims by Total S.A. or other customers;
     
  · our ability to maximize the use of our vessels, including the redeployment or disposition of vessels no longer under long-term charters;
     
  · timely acceptance of our vessels by their charterers;

 

  · termination dates and extensions of charters;

 

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

 

  · economic substance laws and regulations adopted or considered by various jurisdictions of formation or incorporation of us and certain of our subsidiaries;

 

  · availability and cost of skilled labor, vessel crews and management, including possible disruptions, including but not limited to the supply chain of spare parts and service engineers, caused by the COVID-19 outbreak;

 

  · the number of off-hire days and drydocking requirements, including our ability to complete scheduled drydocking on time and within budget;

 

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

 

23

 

 

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

 

  · estimated future maintenance and replacement capital expenditures;

 

  · our ability to hire or retain key employees;

 

  · customers’ increasing emphasis on environmental and safety concerns;

 

  · potential liability from any pending or future litigation;

 

  · risks inherent in the operation of our vessels including potential disruption due to accidents, political events, piracy or acts by terrorists;

   

  · future sales of our common units, Series A preferred units or other securities in the public market;

 

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

 

  · our ability to maintain effective internal control over financial reporting and effective disclosure controls and procedures; and

 

  · other factors listed from time to time in the reports and other documents that we file with the SEC, including our Annual Report on Form 20-F for the year ended December 31, 2020 and subsequent quarterly reports on Form 6-K.

 

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

 

24

 

 

INDEX TO THE FINANCIAL STATEMENTS

 

    Page
Unaudited Condensed Interim Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020   F-2
Unaudited Condensed Interim Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020   F-3
Unaudited Condensed Interim Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020   F-4
Unaudited Condensed Interim Consolidated Statements of Changes in Partners’ Capital for the Three Months Ended March 31, 2021 and the Year Ended December 31, 2020   F-6
Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020   F-7
Notes to Unaudited Condensed Interim Consolidated Financial Statements   F-9

 

F-1

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF INCOME

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

 

      Three months ended 
      March 31, 
   Notes  2021   2020 
REVENUES             
Time charter revenues  3,4  $34,776   $36,686 
Total revenues      34,776    36,686 
OPERATING EXPENSES             
Vessel operating expenses      (6,172)   (5,507)
Administrative expenses      (2,735)   (2,428)
Depreciation and amortization      (5,210)   (5,282)
Total operating expenses  11   (14,117)   (13,217)
Equity in earnings (losses) of joint ventures  3,7   11,073    (10,047)
Operating income (loss)  3   31,732    13,422 
FINANCIAL INCOME (EXPENSE), NET             
Interest income  11   133    172 
Interest expense  9,11   (5,658)   (6,511)
Other items, net      (653)   (647)
Total financial income (expense), net  5   (6,178)   (6,986)
Income (loss) before tax      25,554    6,436 
Income tax expense  6   (1,716)   (962)
Net income (loss)  3  $23,838   $5,474 
Preferred unitholders' interest in net income      3,877    3,668 
Limited partners' interest in net income (loss)     $19,961   $1,806 
              
Earnings per unit             
Common unit public (basic and diluted)  17  $0.59   $0.04 
Common unit Höegh LNG (basic and diluted)  17  $0.61   $0.07 

 

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

 

F-2

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of U.S. dollars)

 

        Three months ended
        March 31,  
    Notes   2021     2020  
Net income (loss)       $ 23,838     $ 5,474  
Unrealized gains (losses) on cash flow hedge   13     6,442       (15,120 )
Income tax benefit (expense)   13     (73 )     (76 )
Other comprehensive income (loss)         6,369       (15,196 )
Comprehensive income (loss)       $ 30,207     $ (9,722 )
Preferred unitholders' interest in net income         3,877       3,668  
Limited partners' interest in comprehensive income (loss)       $ 26,330     $ (13,390 )

 

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

 

F-3

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
BALANCE SHEETS

(in thousands of U.S. dollars)

 

        As of  
        March 31,     December 31,  
    Notes   2021     2020  
ASSETS                    
Current assets                    
Cash and cash equivalents   12   $ 27,070     $ 31,770  
Restricted cash   12     7,116       7,198  
Trade receivables   4,13     4,585       415  
Amounts due from affiliates   4,11,12     3,722       3,639  
Advances to joint ventures    8,12     3,350       3,284  
Current portion of net investment in financing lease   4     5,080       4,969  
Prepaid expenses and other receivables         4,698       3,883  
Total current assets         55,621       55,158  
Long-term assets                    
Restricted cash   12     11,994       12,095  
Accumulated earnings of joint ventures   7     20,763       9,690  
Advances to joint ventures   8,12     886       869  
Vessels, net of accumulated depreciation         614,415       619,620  
Other equipment         85       109  
Intangibles and goodwill         13,376       14,056  
Net investment in financing lease   4     267,976       269,288  
Long-term deferred tax asset   6     99       102  
Other long-term assets         823       823  
Total long-term assets         930,417       926,652  
Total assets       $ 986,038     $ 981,810  

 

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

 

F-4

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
BALANCE SHEETS

(in thousands of U.S. dollars)

 

        As of  
        March 31,     December 31,  
    Notes   2021     2020  
LIABILITIES AND EQUITY                    
Current liabilities                    
Current portion of long-term debt   9,12   $ 58,075     $ 59,119  
Trade payables         426       467  
Amounts due to owners and affiliates   11,12     2,531       2,600  
Value added and withholding tax liability         1,210       1,445  
Derivative instruments   12,13     6,661       6,945  
Accrued liabilities and other payables   6,10     8,793       7,232  
Total current liabilities         77,696       77,808  
Long-term liabilities                    
Long-term debt   9,12     345,872       355,470  
Revolving credit facility due to owners and affiliates   11,12     18,191       18,465  
Derivative instruments   12,13     13,417       19,530  
Long-term tax liability   6     1,605       2,668  
Long-term deferred tax liability   6     15,123       14,430  
Other long-term liabilities         114       124  
Total long-term liabilities         394,322       410,687  
Total liabilities         472,018       488,495  
EQUITY                    
8.75% Series A preferred units:
7,089,325 units issued and outstanding at March 31, 2021 and
6,752,590 units issued and outstanding at December 31, 2020
  15,16     176,078       167,760  
Common units public:
18,103,544 units issued and outstanding at March 31, 2021 and
18,050,941 units issued and outstanding at December 31, 2020
  15,16     312,320       308,850  
Common units Höegh LNG
15,257,498 units issued and outstanding at March 31, 2021 and
December 31, 2020
  16     48,825       46,277  
Accumulated other comprehensive income (loss)         (23,203 )     (29,572 )
Total partners' capital         514,020       493,315  
Total equity         514,020       493,315  
Total liabilities and equity       $ 986,038     $ 981,810  

 

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

 

F-5

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(in thousands of U.S. dollars)

 

   Partners' Capital     
   8.75%
Series A
Preferred
Units
   Common
Units
Public
   Common
Units
Höegh
LNG
   Accumulated
Other
Comprehensive
Income (Loss)
   Total
Equity
 
Consolidated balance as of December 31, 2019  $164,482    315,176    39,795    (17,943)  $501,510 
Net income   14,802    25,333    23,010        63,145 
Cash distributions to unitholders   (14,698)   (31,737)   (28,451)       (74,886)
Cumulative change in accounting principle       (84)   (72)       (156)
Other comprehensive income (loss)               (11,629)   (11,629)
Net proceeds from issuance of Series A preferred units   3,174                3,174 
Issuance of units for Board of Directors' fees       181            181 
Contribution from Höegh LNG           11,850        11,850 
Other and contributions from owners       (19)   145        126 
Consolidated balance as of December 31, 2020  $167,760    308,850    46,277    (29,572)  $493,315 
Net income   3,877    10,615    9,346        23,838 
Cash distributions to unitholders   (3,877)   (7,966)   (7,113)       (18,956)
Other comprehensive income               6,369    6,369 
Net proceeds from issuance of common units       818            818 
Net proceeds from issuance of Series A preferred units   8,318                8,318 
Contribution from Höegh LNG           315        315 
Other and contributions from owners       3            3 
Consolidated balance as of March 31, 2021  $176,078    312,320    48,825    (23,203)  $514,020 

  

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

 

F-6

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED

STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

 

   Three months ended
March 31,
 
   2021   2020 
OPERATING ACTIVITIES          
Net income (loss)  $23,838   $5,474 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   5,210    5,282 
Equity in losses (earnings) of joint ventures   (11,073)   10,047 
Changes in accrued interest income on advances to joint ventures   (83)   (78)
Amortization of deferred debt issuance cost   523    592 
Amortization in revenue for above market contract   679    905 
Changes in accrued interest expense   (156)   (40)
Receipts from repayment of principal on financing lease   1,202    1,101 
Unrealized foreign exchange losses (gains)   12    (27)
Unrealized loss (gain) on derivative instruments   45    91 
Non-cash revenue: tax paid directly by charterer   (208)   (205)
Non-cash income tax expense: tax paid directly by charterer   208    205 
Deferred tax expense and provision for tax uncertainty   665    (106)
Other adjustments   2    102 
Changes in working capital:          
Trade receivables   (4,201)   (4,447)
Prepaid expenses and other receivables   (823)   (575)
Trade payables   (40)   100 
Amounts due to owners and affiliates   (152)   (529)
Value added and withholding tax liability   (613)   (1,007)
Accrued liabilities and other payables   1,117    (2,874)
Net cash provided by (used in) operating activities  $16,152   $14,011 

 

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

 

F-7

 

 

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED

STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

 

  

Three months ended

March 31,

 
   2021   2020 
INVESTING ACTIVITIES          
Net cash provided by (used in) investing activities  $   $ 
           
FINANCING ACTIVITIES          
Repayment of long-term debt   (11,165)   (11,164)
Payment of debt issuance costs   818     
Net proceeds from issuance of Series A preferred units   8,318    2,125 
Cash distributions to limited partners and preferred unitholders   (18,956)   (18,714)
Net cash provided by (used in) financing activities   (20,985)   (27,753)
           
Increase (decrease) in cash, cash equivalents and restricted cash   (4,833)   (13,742)
Effect of exchange rate changes on cash, cash equivalents and restricted cash   (50)   (103)
Cash, cash equivalents and restricted cash, beginning of period   51,063    59,819 
Cash, cash equivalents and restricted cash, end of period  $46,180   $45,974 
           

 

Cash, cash equivalents and restricted cash; end of period:

 

   As of March 31, 
   2021   2020 
Cash and cash equivalents  $27,070   $27,665 
Restricted cash - current asset   7,116    5,794 
Restricted cash - non-current asset   11,994    12,515 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows  $46,180   $45,974 

 

Cash, cash equivalents and restricted cash; beginning of period:

 

   As of December 31, 
   2020   2019 
Cash and cash equivalents  $31,770   $39,126 
Restricted cash - current asset   7,198    8,066 
Restricted cash - non-current asset   12,095    12,627 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows  $51,063   $59,819 

 

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

 

F-8

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

1. Description of business

 

Höegh LNG Partners LP (the “Partnership”) is a publicly traded Marshall Islands limited partnership initially formed for the purpose of acquiring from Höegh LNG Holdings Ltd. (“Höegh LNG”) its interests in Hoegh LNG Lampung Pte. Ltd., PT Hoegh LNG Lampung (the owner of the PGN FSRU Lampung), SRV Joint Gas Ltd. (the owner of the Neptune), and SRV Joint Gas Two Ltd. (the owner of the Cape Ann) in connection with the Partnership’s initial public offering of its common units (the “IPO”) in August 2014. As of March 31, 2021, the Partnership has a fleet of five floating storage regasification units (“FSRUs”). 

 

The interests in SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd., collectively, are referred to as the “joint ventures” and the remaining entities owned by the Partnership, as reflected in the table below are, collectively, referred to as the “subsidiaries” in these consolidated financial statements. The PGN FSRU Lampung, the Höegh Gallant, the Höegh Grace, the Neptune and the Cape Ann are FSRUs and, collectively, referred to in these consolidated financial statements as the vessels or the “FSRUs.” The Tower Yoke Mooring System (the “Mooring”) is an offshore installation that is used to moor the PGN FSRU Lampung to offload the gas into an offshore pipe that transports the gas to a land terminal. PT Hoegh LNG Lampung, Hoegh LNG Cyprus Limited, the owner of the Höegh Gallant, Höegh LNG FSRU IV Ltd., the owner of the Höegh Grace, and the two joint ventures, SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd., are collectively referred to as the “FSRU-owning entities.” 

 

The Neptune and the Cape Ann operate under long-term time charters with expiration dates in 2029 and 2030, respectively, and, in each case, with an option for the charterer, Global LNG Supply SA, as novated to Total Gas & Power Ltd. in February 2020, both subsidiaries of Total S.A. (“Total”), to extend for up to one additional period of ten years or two additional periods of five years each. The PGN FSRU Lampung operates under a long term time charter which started in July 2014 with an expiration date in 2034, with an option for the charterer to extend for up to two additional periods of five years each, and uses the Mooring that was constructed, installed and sold to the charterer, PT PGN LNG Indonesia (“PGN LNG”), a subsidiary of PT Perusahaan Gas Negara (Persero) Tbk (“PGN”), a subsidiary of PT Pertamina, a government-controlled, Indonesian oil and gas producer, natural gas transportation and distribution company. The Höegh Gallant operated under a long term time charter which started in April 2015 and expired in April 2020 with Hoegh LNG Egypt LLC (“EgyptCo”), a subsidiary of Höegh LNG. On February 27, 2020, the Partnership exercised its right pursuant to an option agreement to cause Höegh LNG or its subsidiary to charter the Höegh Gallant from the expiration of the EgyptCo charter until July 2025. On April 30, 2020, the Partnership entered into a lease and maintenance agreement with another subsidiary of Höegh LNG for the time charter of the Höegh Gallant (the “Subsequent Charter”). The Subsequent Charter commenced on May 1, 2020 and expires July 31, 2025. The Höegh Grace operates under a long term time charter which started in December 2016 with Sociedad Portuaria El Cayao S.A. E.S.P. (“SPEC”). SPEC is owned 51% by Promigas S.A. ESP, a Colombian company focused on the transportation and distribution of natural gas, and 49% by private equity investors. The non-cancellable charter period of 10 years ends in December 2026. The initial term of the charter is 20 years. However, each party has an unconditional option to cancel the charter after 10 and 15 years without penalty. However, if SPEC waives its right to terminate in year 10 within a certain deadline, the Partnership will not be able to exercise its right to terminate in year 10.

 

F-9

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

The following table lists the entities included in these consolidated financial statements and their purpose as of March 31, 2021.

 

    Jurisdiction of    
    Incorporation    
Name   or Registration   Purpose
Höegh LNG Partners LP   Marshall Islands   Holding Company
Höegh LNG Partners Operating LLC (100% owned)   Marshall Islands   Holding Company
Hoegh LNG Services Ltd (100% owned)   United Kingdom   Administration Services Company
Hoegh LNG Lampung Pte. Ltd. (100% owned)   Singapore   Owns 49% of PT Hoegh LNG Lampung
PT Hoegh LNG Lampung (49% owned) (1)   Indonesia   Owns PGN FSRU Lampung
SRV Joint Gas Ltd. (50% owned) (2)   Cayman Islands   Owns Neptune
SRV Joint Gas Two Ltd. (50% owned) (2)   Cayman Islands   Owns Cape Ann
Hoegh LNG Cyprus Limited (100% owned)   Cyprus   Owns Höegh Gallant
Hoegh LNG Cyprus Limited Egypt Branch (100% owned)   Egypt   Branch of Hoegh LNG Cyprus Limited
Höegh LNG Colombia Holding Ltd. (100% owned)   Cayman Islands   Owns 100% of Höegh LNG FSRU IV Ltd. and Höegh LNG Colombia S.A.S.
Höegh LNG FSRU IV Ltd. (100% owned)   Cayman Islands   Owns Höegh Grace
Höegh LNG Colombia S.A.S. (100% owned)   Colombia   Operating Company

 

(1) PT Hoegh LNG Lampung is a variable interest entity, which is controlled by Hoegh LNG Lampung Pte. Ltd. and is, therefore, 100% consolidated in the consolidated financial statements.
(2) The remaining 50% interest in each joint venture is owned by Mitsui O.S.K. Lines, Ltd. and Tokyo LNG Tanker Co.

 

F-10

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

2. Significant accounting policies

 

Basis of presentation

 

The accompanying unaudited condensed interim consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“US GAAP”) for interim financial information. In the opinion of Management, all adjustments considered necessary for a fair presentation, which are of a normal recurring nature, have been included. All inter-company balances and transactions are eliminated. The footnotes are condensed and do not include all the disclosures required for a complete set of financial statements. Therefore, the unaudited condensed interim consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020, included in the Partnership’s Annual Report on Form 20-F (the “Annual Report”).

 

The consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. Please refer to note 18 for the Partnership’s plan to refinance the Lampung debt facility.

 

It has been determined that PT Hoegh LNG Lampung, Hoegh LNG Cyprus Limited, Höegh LNG Colombia Holding Ltd., SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd. are variable interest entities. A variable interest entity (“VIE”) is defined by US GAAP as a legal entity where either (a) the voting rights of some investors are not proportional to their rights to receive the expected residual returns of the entity, their obligations to absorb the expected losses of the entity, or both, and substantially all of the entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (b) the equity holders have not provided sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support, or (c) equity interest holders as a group lack the characteristics of a controlling financial interest, including decision making ability and an interest in the entity's residual risks and rewards. The guidance requires a VIE to be consolidated if any of its interest holders are entitled to a majority of the entity's residual returns or are exposed to a majority of its expected losses.

 

Based upon the criteria set forth in US GAAP, the Partnership has determined that PT Hoegh LNG Lampung is a VIE, as the equity holders, through their equity investments, may not participate fully in the entity's expected residual returns and substantially all of the entity's activities either involve, or are conducted on behalf of, the Partnership. The Partnership is the primary beneficiary, as it has the power to make key operating decisions considered to be most significant to the VIE and receives all the expected benefits or expected losses. Therefore, 100% of the assets, liabilities, revenues and expenses of PT Hoegh LNG Lampung are included in the consolidated financial statements. Dividends may only be paid if the retained earnings are positive and a statutory reserve has been established equal to 20% of its paid-up capital under Indonesian law. As of March 31, 2021, PT Hoegh LNG Lampung is in the process of establishing the required statutory reserves and therefore is currently unable to make dividend payments under Indonesia law. Under the Lampung facility, there are limitations on cash dividends and loan distributions that can be made to the Partnership. Refer to note 9.

 

The Partnership has also determined that Hoegh LNG Cyprus Limited is a VIE, as the equity investment does not provide sufficient equity to permit the entity to finance its activities without financial support. The Partnership is the primary beneficiary, as it has the power to make key operating decisions considered to be most significant to the VIE and receives all the expected benefits or expected losses. Therefore, 100% of the assets, liabilities, revenues and expenses of Hoegh LNG Cyprus Limited are included in the consolidated financial statements. Under Cyprus law, dividends may only be distributed out of profits and not from the share capital of the company.

 

The Partnership has determined that Höegh LNG Colombia Holding Ltd. is a VIE since the entity would not be able to finance its activities without financial support and financial guarantees under its subsidiary’s facility to finance the Höegh Grace. The Partnership is the primary beneficiary, as it has the power to make key operating decisions considered to be most significant to the VIE and receives the majority of the expected benefits or expected losses. Therefore, 100% of the assets, liabilities, revenues and expenses of Höegh LNG Colombia Holding Ltd., and subsidiaries, are included in the consolidated financial statements. Under Cayman Islands law, dividends may only be paid out of profits or capital reserves if the entity is solvent after the distributions.

 

F-11

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

Dividends and other distributions from Hoegh LNG Cyprus Limited, Höegh LNG Colombia Holding Ltd. and Höegh LNG FSRU IV Ltd. may only be distributed if after the dividend payment, the Partnership would remain in compliance with the financial covenants under the $385 million facility. Refer to note 9.

 

In addition, the Partnership has determined that the two joint ventures, SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd., are VIEs since each entity did not have a sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support. The entities have been financed with third party debt and subordinated shareholders loans. The Partnership is not the primary beneficiary, as the Partnership cannot make key operating decisions considered to be most significant to the VIEs but has joint control with the other equity holders. Therefore, the joint ventures are accounted for under the equity method of accounting as the Partnership has significant influence. The Partnership's carrying value is recorded in advances to joint ventures and accumulated earnings (losses) of joint ventures in the consolidated balance sheets. For SRV Joint Gas Ltd., the Partnership had a receivable for the advances of $3.4 and $3.3 million, as of March 31, 2021 and December 31, 2020, respectively. The Partnership’s accumulated earnings, or its share of net assets, were $10.9 million and $5.5 million, respectively, as of March 31, 2021 and December 31, 2020. The Partnership's carrying value for SRV Joint Gas Two Ltd. consists of a receivable for the advances of $0.9 million, as of March 31, 2021 and December 31, 2020. The Partnership’s accumulated earnings, or its share of net assets, were $9.9 million and $4.2 million, respectively, as of March 31, 2021 and December 31, 2020. The major reason that the Partnership had accumulated earnings in the joint ventures as of March 31, 2021 and the major reason that the Partnership historically has had accumulated losses in the joint ventures, or net liabilities, is due to the fair value adjustments for the interest rate swaps recorded as liabilities on the balance sheets of SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd. and eliminations for consolidation to the balance sheet. The maximum exposure to loss is the carrying value of the receivables, which is subordinated to the joint ventures’ long-term bank debt, the investments in the joint ventures (accumulated earnings or losses), as the shares are pledged as security for the joint ventures’ long-term bank debt, and Höegh LNG’s commitment under long-term bank loan agreements to fund its share of drydocking costs and remarketing efforts in the event of an early termination of the charters. If the charters terminate for any reason that does not result in a termination fee, the joint ventures’ long-term bank debt would be subject to mandatory repayment. Dividend distributions require a) agreement of the other joint venture owners; b) fulfilment of requirements of the long-term bank loans; c) and under Cayman Islands law may be paid out of profits or capital reserves subject to the joint venture being solvent after the distribution. Refer to notes 8 and 14 for additional discussion on dividend distributions.

 

Significant accounting policies

 

The accounting policies used in the preparation of the unaudited condensed interim consolidated financial statements are consistent with those applied in the audited financial statements for the year ended December 31, 2020 included in the Partnership’s Annual Report, except as described below. 

 

Recently adopted accounting pronouncements

 

On January 1, 2021, the Partnership adopted the Financial Accounting Standards Board’s (“FASB”) revised guidance on Income Taxes – Simplifying the Accounting for Income Taxes. The revised guidance eliminates certain exceptions to the guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This revised guidance has not had a material impact on the Partnership's consolidated financial statements and related disclosures.

 

F-12

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

Recently issued accounting pronouncements

  

In March 2020, FASB issued final guidance for Reference Rate Reform to provide temporary optional expedients and exceptions to the guidance in US GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. For all types of hedging relationships, the guidance allows an entity to change the reference rate and other critical terms related to reference rate reform without having to dedesignate the relationship. The guidance is effective upon issuance through December 31, 2022. The Partnership is evaluating the impact of this revised guidance on its consolidated financial statements for the expected transitions from LIBOR to alternative reference rates. In January 2021 FASB issued an update to the guidance from 2020 to clarify its scope.

 

Other recently issued accounting pronouncements are not expected to materially impact the Partnership.

 

3. Segment information

 

There are two operating segments. The segment profit measure is Segment EBITDA, which is defined as earnings before interest, taxes, depreciation, amortization and impairment, 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 three months ended March 31, 2021 and 2020, Majority held FSRUs includes the financing lease related to the PGN FSRU Lampung and the operating leases related to the Höegh Gallant and the Höegh Grace.

 

For the three months ended March 31, 2021 and 2020, Joint venture FSRUs includes 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 consolidated financial statements, except that i) Joint venture FSRUs are presented under the proportional consolidation method for the segment note 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.

 

In time charters, the charterer, not the Partnership, controls the choice of locations or routes the FSRUs serve. Accordingly, the presentation of information by geographical region is not meaningful. The following tables include the results for the segments for the three months ended March 31, 2021 and 2020.

 

F-13

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

   Three months ended March 31, 2021 
       Joint venture                 
   Majority   FSRUs       Total         
   held   (proportional       Segment       Consolidated 
(in thousands of U.S. dollars)  FSRUs   Consolidation)   Other   reporting   Eliminations   reporting 
Time charter revenues  $34,776    10,459        45,235    (10,459)(1)  $34,776 
Total revenues   34,776    10,459        45,235         34,776 
Operating expenses   (6,985)   (1,871)   (1,922)   (10,778)   1,871 (1)   (8,907)
Equity in earnings (losses) of joint ventures                   11,073 (1)   11,073 
Segment EBITDA   27,791    8,588    (1,922)   34,457           
Depreciation, amortization and impairment   (5,210)   (2,492)       (7,702)   2,492 (1)   (5,210)
Operating income (loss)   22,581    6,096    (1,922)   26,755         31,732 
Gain (loss) on derivative instruments       7,673        7,673    (7,673)(1)    
Other financial income (expense), net   (2,114)   (2,696)   (4,064)   (8,874)   2,696 (1)   (6,178)
Income (loss) before tax   20,467    11,073    (5,986)   25,554         25,554 
Income tax benefit (expense)   (1,716)           (1,716)       (1,716)
Net income (loss)  $18,751    11,073    (5,986)   23,838       $23,838 
Preferred unitholders’ interest in net income                   3,877(2)   3,877 
Limited partners' interest in net income (loss)  $18,751    11,073    (5,986)   23,838    (3,877)(2)  $19,961 

 

(1)Eliminations reverse each of the income statement line items of the proportional amounts for Joint venture FSRUs and record the Partnership’s share of the Joint venture FSRUs net income (loss) to Equity in earnings (losses) of joint ventures.

(2)Allocates the preferred unitholders’ interest in net income to the preferred unitholders.

 

   As of March 31, 2021 
       Joint venture                 
   Majority   FSRUs       Total         
   held   (proportional       Segment       Consolidated 
(in thousands of U.S. dollars)  FSRUs   consolidation)   Other   reporting   Eliminations   reporting 
Vessels, net of accumulated depreciation  $614,415    239,774        854,189    (239,774)(1)  $614,415 
Net investment in financing lease   273,056            273,056        273,056 
Goodwill   251            251        251 
Advances to joint ventures           4,236    4,236        4,236 
Total assets   970,740    268,831    15,298    1,254,869    (268,831)(1)   986,038 
Accumulated earnings of joint ventures           50    50    20,713 (1)   20,763 
Expenditures for vessels & equipment       6        6    (6)(2)    
Principal repayment financing lease   1,202            1,202        1,202 
Amortization of above market contract  $679            679       $679 

 

(1) Eliminates the proportional share of the Joint venture FSRUs’ Vessels, net of accumulated depreciation, and Total assets and reflects the Partnership’s share of net assets (assets less liabilities) of the Joint venture FSRUs as Accumulated earnings of joint ventures.
(2) Eliminates the Joint venture FSRUs’ Expenditures for vessels & equipment and drydocking to reflect the consolidated expenditures of the Partnership.

 

F-14

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

   Three months ended March 31, 2020 
       Joint venture                 
   Majority   FSRUs       Total         
   held   (proportional       Segment       Consolidated 
(in thousands of U.S. dollars)  FSRUs   Consolidation)   Other   reporting   Eliminations   reporting 
Time charter revenues  $36,686    10,527        47,213    (10,527)(1)  $36,686 
Total revenues   36,686    10,527        47,213         36,686 
Operating expenses   (6,230)   (3,152)   (1,705)   (11,087)   3,152 (1)   (7,935)
Equity in earnings (losses) of joint ventures                   (10,047)(1)   (10,047)
Segment EBITDA   30,456    7,375    (1,705)   36,126           
Depreciation, amortization and impairment   (5,282)   (2,495)       (7,777)   2,495 (1)   (5,282)
Operating income (loss)   25,174    4,880    (1,705)   28,349         13,422 
Gain (loss) on derivative instruments       (11,784)       (11,784)   11,784 (1)    
Other financial income (expense), net   (2,544)   (3,031)   (4,442)   (10,017)   3,031 (1)   (6,986)
Income (loss) before tax   22,630    (9,935)   (6,147)   6,548         6,436 
Income tax benefit (expense)   (962)   (112)       (1,074)   112    (962)
Net income (loss)  $21,668    (10,047)   (6,147)   5,474       $5,474 
Preferred unitholders’ interest in net income                   3,668 (2)   3,668 
Limited partners' interest in net income (loss)  $21,668    (10,047)   (6,147)   5,474    (3,668)(2)  $1,806 

 

(1)Eliminations reverse each of the income statement line items of the proportional amounts for Joint venture FSRUs and record the Partnership’s share of the Joint venture FSRUs net income (loss) to Equity in earnings (losses) of joint ventures.
(2)Allocates the preferred unitholders’ interest in net income to the preferred unitholders.

 

   As of December 31, 2020 
       Joint venture                 
   Majority   FSRUs       Total         
   held   (proportional       Segment       Consolidated 
(in thousands of U.S. dollars)  FSRUs   consolidation)   Other   reporting   Eliminations   Reporting 
Vessels, net of accumulated depreciation  $619,620    242,226        861,846    (242,226)(1)  $619,620 
Net investment in financing lease   274,257            274,257        274,257 
Goodwill   251            251        251 
Advances to joint ventures           4,153    4,153        4,153 
Total assets   969,278    267,003    12,532    1,248,813    (267,003)(1)   981,810 
Accumulated earnings of joint ventures           50    50    9,640 (1)   9,690 
Expenditures for vessels & equipment   8    75        83    (75)(2)   8 
Expenditures for drydocking       2        2    (2)(2)    
Principal repayment financing lease   4,551            4,551        4,551 
Amortization of above market contract  $3,052            3,052       $3,052 

 

(1)Eliminates the proportional share of the Joint venture FSRUs’ Vessels, net of accumulated depreciation, and Total assets and reflects the Partnership’s share of net assets (assets less liabilities) of the Joint venture FSRUs as Accumulated earnings of joint ventures.

(2)Eliminates the Joint venture FSRUs’ Expenditures for vessels & equipment and drydocking to reflect the consolidated expenditures of the Partnership.

 

F-15

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

4. Time charter revenues and related contract balances

 

The Partnership presents its revenue by segment, disaggregated by revenue recognized in accordance with accounting standards on leasing and on revenue from contracts with customers for time charter services. In addition, material elements where the nature, amount, timing and uncertainty of revenue and cash flows differ from the monthly invoicing under time charter contracts are separately presented. Revenue recognized for the Majority held FSRUs includes the amortization of above market contract intangibles. Revenue recognized for Joint venture FSRUs includes the amortization of deferred revenues related to the charterer's reimbursements for certain vessel modifications and drydocking costs. As a result, the timing of cash flows differs from monthly time charter invoicing. The Partnership believes the nature of its time charter contracts are the same, regardless of whether the contracts are accounted for as financing leases or operating leases for accounting purposes. As such, the Partnership did not apply the practical expedient in the lease guidance to combine lease and services components for operating leases because this would result in inconsistent disclosure for the time charter contracts.

 

The following tables summarize the disaggregated revenue of the Partnership by segment for the three months ended March 31, 2021 and 2020: 

 

   Three months ended March 31, 2021 
(in thousands of U.S. dollars)  Majority held
FSRUs
   Joint venture
FSRUs
(proportional
consolidation)
   Other   Total segment
reporting
   Eliminations (1)   Consolidated
reporting
 
Lease revenues, excluding amortization (2)  $21,439    6,335        27,774    (6,335)  $21,439 
Time charter service revenues, excluding amortization   14,016    3,441        17,457    (3,441)   14,016 
Amortization of above market contract intangibles   (679)           (679)       (679)
Amortization of deferred revenue for modifications & drydock       683        683    (683)    
Total revenues (3)  $34,776    10,459        45,235    (10,459)  $34,776 

 

   Three months ended March 31, 2020 
(in thousands of U.S. dollars)  Majority held
FSRUs
   Joint venture
FSRUs
(proportional
consolidation)
   Other   Total segment
reporting
   Eliminations (1)   Consolidated
reporting
 
Lease revenues, excluding amortization (2)  $22,458    6,405        28,863    (6,405)  $22,458 
Time charter service revenues, excluding amortization   15,133    3,453        18,586    (3,453)   15,133 
Amortization of above market contract intangibles   (905)           (905)       (905)
Amortization of deferred revenue for modifications & drydock       669        669    (669)    
Total revenues (3)  $36,686    10,527        47,213    (10,527)  $36,686 

 

F-16

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

  

  (1) Eliminations reverse the proportional amounts of revenue for Joint venture FSRUs to reflect the consolidated revenues included in the consolidated income statement. The Partnership’s share of the Joint venture FSRUs revenues is included in Equity in earnings (losses) of joint ventures on the consolidated income statement.
  (2) The financing lease revenues comprise about one-fourth of the total lease revenues for the three months ended March 31, 2021 and 2020.
  (3) Payments made by the charterer directly to the tax authorities on behalf of the subsidiaries for advance collection of income taxes or final income tax is recorded as a component of total revenues and is disclosed separately in the consolidated statement of cash flows.

 

The Partnership’s risk and exposure related to uncertainty of revenues or cash flows related to its long-term time charter contracts primarily relate to the credit risk associated with the individual charterers. Payments are due under time charter contracts regardless of the demand for the charterers’ gas output or the utilization of the FSRU.

 

The consolidated trade receivables, contract assets, contract liabilities and refund liabilities included in the table below exclude the balances for the Joint venture FSRUs. The Partnership’s share of net assets in the Joint venture FSRUs is recorded in the consolidated balance sheet using the equity method on the line Accumulated earnings in joint ventures.  

 

The following table summarizes the allocation of consolidated receivables between lease and service components:

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Trade receivable for lease  $5,299   $2,608 
Trade receivable for time charter services   3,068    1,506 
Allowance for expected credit losses   (60)   (60)
Total trade receivable and amounts due from affiliates  $8,307   $4,054 

 

For the three months ended March 31, 2021, there was no change in the allowance for expected credit losses. For the year ended December 31, 2020, there was no change in the allowance for expected credit losses following the cumulative effect of adopting the standard on Financial Instruments – Credit Losses: Measurement of Credit Losses on January 1, 2020. 

 

The following tables summarize the consolidated contract assets and refund liabilities to customers for the three months ended March 31, 2021 and for the year ended December 31, 2020:

 

   Services related 
   Contract   Refund liability 
(in thousands of U.S. dollars)  Asset   to charters 
Balance as of January 1, 2021  $261   $(891)
Additions   220    (103)
Balance as of March 31, 2021  $481   $(994)

 

F-17

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

   Services related 
   Contract   Refund liability 
(in thousands of U.S. dollars)  Asset   to charters 
Balance as of January 1, 2020  $279   $(125)
Additions       (841)
Reduction for receivables recorded   (18)    
Reduction for revenue recognized (excluding amortization)       10 
Reduction for revenue recognized from previous years       48 
Repayments of refund liabilities to charterer       17 
Balance as of December 31, 2020  $261   $(891)

 

Contract assets are reported in the consolidated balance sheet as a component of prepaid expenses and other receivables. Current and non-current contract liabilities are reported in the consolidated balance sheet as components of accrued liabilities and other payables and other long-term liabilities, respectively. Refund liabilities are reported in the consolidated balance sheet as a component of accrued liabilities and other payables.

 

The service-related contract asset reflected in the balance sheet relates to accrued revenue for reimbursable costs from charterers.

 

Refund liabilities to charterers include invoiced revenue to be refunded to charterers for estimated reimbursable costs that exceeded the actual cost incurred and for non-compliance with performance warranties in the time charter contracts that result in reduction of hire, liquidated damages or other performance related payments.  

 

F-18

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

Net investment in financing lease:

 

The lease element of time charter hire for the PGN FSRU Lampung is recognized over the lease term using the effective interest rate method and is included in time charter revenues. The financing lease is reflected on the consolidated balance sheets as net investment in financing lease, a receivable, as follows:

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Minimum lease payments  $589,074   $589,074 
Unguaranteed residual value   146,000    146,000 
Unearned income   (440,345)   (440,345)
Initial direct cost, net   3,095    3,095 
Net investment in financing lease at origination   297,824    297,824 
Principal repayment and amortization   (24,672)   (23,471)
Allowance for expected credit loss   (96)   (96)
Net investment in financing lease at period end   273,056    274,257 
Less: Current portion   (5,080)   (4,969)
Long term net investment in financing lease  $267,976   $269,288 
           
Net investment in financing lease consists of:          
Financing lease receivable  $229,566   $231,725 
Unguaranteed residual value   43,490    42,532 
Net investment in financing lease at period end  $273,056   $274,257 

 

F-19

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

5. Financial income (expense), net

 

The components of financial income (expense), net are as follows: 

 

   Three months ended 
   March 31, 
(in thousands of U.S. dollars)  2021   2020 
Interest income  $133   $172 
Interest expense:          
Interest expense   (5,056)   (5,793)
Amortization and gain (loss) on cash flow hedge   (45)   (91)
Commitment fees   (34)   (34)
Amortization of debt issuance cost   (523)   (593)
Total interest expense   (5,658)   (6,511)
Other items, net:          
Foreign exchange gain (loss)   (19)   48 
Bank charges, fees and other   (54)   (84)
Withholding tax on interest expense and other   (580)   (611)
Total other items, net   (653)   (647)
Total financial income (expense), net  $(6,178)  $(6,986)

 

Interest income related to cash balances and interest accrued on the advances to the joint ventures for each of the three months ended March 31, 2021 and 2020. Interest expense includes interest related to the revolving credit facility from Höegh LNG, the Lampung facility and the $385 million facility.

 

6. Income tax

 

The Partnership is not subject to Marshall Islands corporate income taxes. The Partnership is subject to tax for earnings of its subsidiaries incorporated in Singapore, Indonesia, Cyprus and for certain Colombian source income. The income tax expense recorded in the consolidated income statements was $1,716 and $962 for the three months ended March 31, 2021 and 2020, respectively. The tax rate in Indonesia decreased from 25% for 2019 to 22% for 2020 and 2021 with further reductions to 20% for 2022. The effect of changes in tax rates on deferred tax assets and liabilities is recognized at the date of enactment which was March 31, 2020, hence a positive impact of the reduced tax rate was recognized in the tax expense for the three months ended March 31, 2020. For the three months ended March 31, 2021 and 2020, the income tax expense principally related to subsidiaries in Indonesia, Singapore and Colombia. The Singapore subsidiary’s taxable income mainly arises from internal interest income. The charterer in Colombia pays certain taxes directly to the Colombian tax authorities on behalf of the Partnership’s subsidiaries that own and operate the Höegh Grace. The 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. The Partnership 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 $208 and $205 for the three months ended March 31, 2021 and 2020, respectively.

 

Benefits of uncertain tax positions are recognized when it is more-likely-than-not that a tax position taken in a tax return will be sustained upon examination based on the technical merits of the position. For the three months ended March 31, 2021 and 2020, there were increases in uncertain tax positions of $42 and $97, respectively. As of March 31, 2021, and December 31, 2020, the unrecognized tax benefits were $2,710 and $2,668, respectively.

 

F-20

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

7. Investments in joint ventures

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Accumulated earnings of joint ventures  $20,763   $9,690 
           

 

The Partnership has a 50% interest in each of SRV Joint Gas Ltd. (owner of the Neptune) and SRV Joint Gas Two Ltd. (owner of the Cape Ann). The following table presents the summarized financial information for 100% of the combined joint ventures on an aggregated basis.  

 

   Three months ended 
   March 31, 
(in thousands of U.S. dollars)  2021   2020 
Time charter revenues  $19,194   $18,884 
Other income   1,723    2,169 
Total revenues   20,917    21,053 
Operating expenses   (3,743)   (6,304)
Depreciation and amortization   (5,136)   (5,143)
Operating income   12,038    9,606 
Unrealized gain (loss) on derivative instruments   15,346    (23,568)
Other financial expense, net   (5,391)   (6,063)
Income (loss) before tax   21,993    (20,025)
Income tax expense       (223)
Net income (loss)  $21,993   $(20,248)
Share of joint ventures owned   50%   50%
Share of joint ventures net income (loss) before eliminations   10,997    (10,124)
Eliminations   76    77 
Equity in earnings (losses) of joint ventures  $11,073   $(10,047)

 

F-21

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Cash and cash equivalents  $14,595   $13,455 
Restricted cash   21,186    21,264 
Other current assets   7,297    178 
Total current assets   43,078    34,897 
Restricted cash   15,036    14,656 
Vessels, net of accumulated depreciation   494,261    499,318 
Total long-term assets   509,297    513,974 
Current portion of long-term debt   195,566    199,030 
Amounts and loans due to owners and affiliates   6,758    7,278 
Derivative instruments   14,537    14,687 
Refund liabilities   1,058    1,040 
Other current liabilities   14,763    8,811 
Total current liabilities   232,682    230,846 
Long-term debt   172,573    176,385 
Loans due to owners and affiliates   1,772    1,737 
Derivative instruments   54,422    69,618 
Other long-term liabilities   34,687    36,040 
Total long-term liabilities   263,454    283,780 
Net assets (liabilities)  $56,239   $34,245 
Share of joint ventures owned   50%   50%
Share of joint ventures net assets (liabilities) before eliminations   28,120    17,123 
Eliminations   (7,357)   (7,433)
Accumulated earnings of joint ventures  $20,763   $9,690 

 

8. Advances to joint ventures

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Current portion of advances to joint ventures  $3,350   $3,284 
Long-term advances to joint ventures   886    869 
Advances to joint ventures  $4,236   $4,153 

 

The Partnership had advances of $3.4 million and $3.3 million due from SRV Joint Gas Ltd. as of March 31, 2021 and December 31, 2020, respectively. The Partnership had advances of $0.9 million due from SRV Joint Gas Two Ltd. as of March 31, 2021 and December 31, 2020. The joint ventures repaid the original principal of all shareholder loans during 2016. As of March 31, 2021, and December 31, 2020, the outstanding balances are accrued interest on the shareholder loans.

 

F-22

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

As of September 30, 2017, the joint ventures suspended payments on the shareholder loans pending the outcome of the boil-off claim, which was settled in December 2020. The suspension of payments on the shareholder loans is currently being re-evaluated. Based on the final settlement of the boil-off claim made in December 2020, in addition to meeting certain conditions for making distributions as described below, the outstanding balance on the shareholder loan due from SRV Joint Gas Ltd. has been classified as current as of March 31, 2021 while the outstanding balance on the shareholder loan due from SRV Joint Gas Two Ltd. has been classified as non-current as of March 31, 2021. Refer to note 14 under “Joint ventures boil-off settlement.” The advances, including accrued interest, can be repaid based on available cash after servicing of long-term bank debt. There are no financial covenants in the joint ventures’ bank debt facilities, but certain other covenants and restrictions apply. Certain conditions apply to making distributions for the shareholder loans or dividends, including meeting a 1.20 historical and projected debt service coverage ratio. As of March 31, 2021, both the 1.20 historical and projected debt service coverage ratios were met by SRV Joint Gas Ltd. As a result, SRV Joint Gas Ltd. qualifies to make payments on the shareholder loans or other distributions. As of March 31, 2021, SRV Joint Gas Two Ltd. did not meet the 1.20 historical debt service coverage ratio but did meet the projected debt service coverage ratio. As a result, no payments on the shareholder loans or other distributions can be made by SRV Joint Gas Two Ltd. until the debt service coverage ratio is met in future periods.

 

9. Long-term debt

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Lampung facility:          
Export credit tranche  $75,602   $79,324 
FSRU tranche   17,592    18,635 
$385 million facility          
Commercial tranche   225,972    230,705 
Export credit tranche   42,833    44,500 
Revolving credit facility   48,300    48,300 
Outstanding principal   410,299    421,464 
Lampung facility unamortized debt issuance cost   (2,708)   (2,999)
$385 million facility unamortized debt issuance costs   (3,644)   (3,876)
Total debt   403,947    414,589 
Less: Current portion of long-term debt   (58,075)   (59,119)
Long-term debt  $345,872   $355,470 

 

Lampung facility

 

PT Hoegh LNG Lampung is the Borrower and Höegh LNG is the guarantor for the Lampung facility.

 

The FSRU tranche is repayable quarterly over 7 years with a final balloon payment of $15.5 million due on October 30, 2021. The export credit tranche is repayable in quarterly installments over 12 years assuming the balloon payment of the FSRU tranche is refinanced. If not, the export credit agent can exercise a prepayment right for repayment of the outstanding balance upon maturity of the FSRU tranche. 

 

The primary financial covenants under the Lampung facility are as follows:

 

  Borrower must maintain a minimum debt service coverage ratio of 1.10 to 1.00 for the preceding nine-month period tested on each quarterly repayment date;
  Guarantor’s book equity must be greater than the higher of (i) $200 million and (ii) 25% of total assets; and
  Guarantor’s free liquid assets (cash and cash equivalents or available draws on credit facilities) must be greater than $20 million.

 

F-23

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

As of March 31, 2021, the borrower and the guarantor were in compliance with the financial covenants under the Lampung facility.

 

The Lampung facility requires cash reserves that are held for specifically designated uses, including working capital, operations and maintenance and debt service reserves. Distributions are subject to “waterfall” provisions that allocate revenues to specified priorities of use (such as operating expenses, scheduled debt service, targeted debt service reserves and any other reserves) with the remaining cash being distributable only on certain dates and subject to satisfaction of certain conditions, including meeting a 1.20 historical debt service coverage ratio, no default or event of default then continuing or resulting from such distribution and the guarantor not being in breach of the financial covenants applicable to it. The Lampung facility limits, among other things, the ability of the Borrower to change its business, sell or grant liens on its property including the PGN FSRU Lampung, incur additional indebtedness or guarantee other indebtedness, make investments or acquisitions, enter into intercompany transactions and make distributions.  

 

$385 million facility

 

On January 29, 2019, the Partnership entered into a loan agreement with a syndicate of banks to refinance the outstanding balances of the Gallant/Grace facility. Höegh LNG Partners LP is the borrower (the “Borrower”) for the senior secured term loan and revolving credit facility (the “$385 million facility”). The aggregate borrowing capacity is $320 million on the senior secured term loan and $63 million on the revolving credit tranche. Hoegh LNG Cyprus Limited, which owns the Höegh Gallant, and Höegh LNG FSRU IV Ltd., the owner of the Höegh Grace (collectively, the "Vessel Owners"), and Höegh LNG Colombia S.A.S., are guarantors for the facility (collectively, the "guarantors"). The facility is secured by, among other things, a first priority mortgage of the Höegh Gallant and the Höegh Grace, an assignment of the Hoegh LNG Cyprus Limited’s, Höegh LNG FSRU IV Ltd.’s, Höegh LNG Colombia S.A.S.’s rights under their respective time charters and earnings and a pledge of the Borrower’s and Guarantor’s cash accounts. The Partnership and its subsidiaries have provided a pledge of shares in Hoegh LNG Cyprus Limited, Höegh LNG FSRU IV Ltd. and Höegh LNG Colombia S.A.S. 

 

The senior secured term loan related to the $385 million facility includes a commercial tranche and the export credit tranche. Each tranche is divided into two term loans for each of the Höegh Gallant and the Höegh Grace

 

On January 31, 2019, the Partnership drew $320 million under the commercial and the export credit tranches on the $385 million facility to settle $303.2 million and $1.6 million of the outstanding balance and accrued interest, respectively, on the Gallant/Grace facility and used proceeds of $5.5 million to pay arrangement fees due under the $385 million facility. The remaining proceeds of $9.6 million were used for general partnership purposes. On August 12, 2019, the Partnership drew $48.3 million under the revolving credit tranche of the $385 million facility, of which $34.0 million was used to repay part of the outstanding balance on the $85 million revolving credit facility due to Höegh LNG. There were no draws during the year ended December 31, 2020 and three months ended March 31, 2021.

 

F-24

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

The primary financial covenants under the $385 million facility are as follows:

 

  · The Partnership must maintain

  o Consolidated book equity (excluding hedge reserves and mark to market value of derivatives) equal to the greater of

  § 25% of total assets, and
  § $150 million

  o Consolidated working capital (current assets, excluding intercompany receivables and marked-to-market value of any financial derivative, less current liabilities, excluding intercompany payables, marked-to-market value of any financial derivative and the current portion of long-term debt) shall at all times be greater than zero
  o Minimum liquidity (cash and cash equivalents and available draws under a bank credit facility for a term of more than 12 months) equal to the greater of

  § $15 million, and
  § $2.5 million multiplied by the number of vessels owned or leased by the Partnership (prorated for partial ownership), subject to a cap of $20 million

 

  · The Vessel Owners must maintain a ratio of combined EBITDA to debt service (principal repayments, guarantee commission, commitment fees and interest expense) for the preceding twelve months of a minimum of 115%

 

In addition, a security maintenance ratio based on the aggregate market value of the Höegh Gallant, the Höegh Grace and any additional security must be at least 125% of the aggregate outstanding loan balance.

 

As of March 31, 2021, the borrower and the Vessel Owners were in compliance with the financial covenants.

 

Under the $385 million facility, cash accounts are freely available for the use of the Borrower and the guarantors, unless there is an event of default. Events of default include, among other things, change of control of Höegh LNG (a waiver of which was obtained in connection with the Amalgamation) or of the Partnership due to the failure of Höegh LNG to own at least 25% of the Partnership’s common units. Cash can be distributed as dividends or to service loans of owners and affiliates provided that after the distribution the Borrower and the guarantors would remain in compliance with the financial covenants. The $385 million facility limits, among other things, the ability of the Borrower and the guarantors to change their business, grant liens on the Höegh Gallant or the Höegh Grace, incur additional indebtedness that is not at pari passu with the $385 million facility, enter into intercompany debt that is not subordinated to the $385 million facility and for the Vessel Owners to make investments or acquisitions.

 

10. Accrued liabilities and payables

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Accrued administrative and operating expenses  $3,081   $3,042 
Accrued interest   2,472    2,641 
Current tax payable   878    469 
Current portion of tax liability (note 6)   1,105     
Refund liabilities (note 4)   994    891 
Lease liability   27    39 
Other accruals and payables   236    150 
Total accrued liabilities and other payables  $8,793   $7,232 

 

F-25

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

11. Related party transactions

 

Income (expenses) from related parties

 

As described in Related party agreements below, subsidiaries of Höegh LNG have provided the administrative services to the Partnership and ship management and/or technical support services for the PGN FSRU Lampung, the Höegh Gallant and the Höegh Grace, as well as leasing the Höegh Gallant. Related party amounts included in the consolidated statements of income for the three months ended March 31, 2021 and 2020 or in the consolidated balance sheets as of March 31, 2021 and December 31, 2020 are as follows:

 

   Three months ended 
Statement of income  March 31, 
(in thousands of U.S. dollars)  2021   2020 
Revenues          
Time charter revenue Höegh Gallant (1)  $10,712   $12,303 
           
Operating expenses          
Vessel operating expenses (2)   (5,131)   (4,339)
Hours, travel expense, overhead (3), and Board of Directors' fees (4)   (1,196)   (1,147)
Financial (income) expense          
Interest income from joint ventures (5)   83    78 
Interest expense to Höegh LNG (6)   (195)   (139)
Total  $4,273   $6,756 

 

   As of 
Balance sheet  March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Equity          
Contribution from Höegh LNG (7)  $315   $11,850 
Issuance of units for Board of Directors' fees (4)       181 
Other and contribution from owner (8)   3    109 
Total  $318   $12,140 

 

F-26

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

1) Time charter revenue Höegh Gallant: A subsidiary of Höegh LNG leases the Höegh Gallant.
2) Vessel operating expenses: Subsidiaries of Höegh LNG provide ship management of vessels, including crews and the provision of all other services and supplies.
3) Hours, travel expenses and overhead: Subsidiaries of Höegh LNG provide management, accounting, bookkeeping and administrative support under administrative service agreements. These services are charged based upon the actual hours incurred for each individual as registered in the time-write system based on a rate which includes a provision for overhead and any associated travel expenses.
4) Board of Directors’ fees: Board of Directors' fees were $147 and $193 for the three months ended March 31, 2021 and 2020, respectively. Part of the compensation is awarded as common units of the Partnership. Effective September 4, 2020, a total of 15,528 common units were awarded to non-employee directors as compensation of $162 for part of directors' fees for 2020 under the Höegh LNG Partners LP Long Term Incentive Plan. The awards were recorded as administrative expense and as an issuance of common units. Common units are recorded when issued.
5) Interest income from joint ventures: The Partnership and its joint venture partners have provided subordinated financing to the joint ventures as shareholder loans. Interest income for the Partnership’s shareholder loans to the joint ventures is recorded as interest income.
6) Interest expense to Höegh LNG and affiliates: Höegh LNG and its affiliates provided an $85 million revolving credit facility for general partnership purposes. The Partnership incurred interest expense on the drawn balance.
7) Non-cash contribution from/distribution to Höegh LNG: As described under “Indemnifications” below, on March 12, 2021 the Partnership was indemnified by Höegh LNG for its share of the joint ventures boil-off settlement by a reduction of $0.3 million on its outstanding balance on the $85 million revolving credit facility from Höegh LNG. On April 8, and December 11, 2020, the Partnership was indemnified by Höegh LNG for its share of joint-ventures boil-off settlement payments by a reduction of $8.6 million and $3.3 million, respectively, on its outstanding balance on the $85 million revolving credit facility from Höegh LNG. These non-cash settlements, totaling $0.3 million and $11.9 million, were recorded as an increase in equity as of March 31, 2021 and December 31, 2020, respectively.
8) Other and contribution from owner: Höegh LNG granted share-based incentives to certain key employees whose services benefit the Partnership. Related expenses are recorded as administrative expenses and as a contribution from owner since the Partnership is not invoiced for this employee benefit. Effective March 26, 2020, March 21, 2019 and September 14, 2018, the Partnership granted or extended the terms for 8,100, 10,917 and 28,018 phantom units, respectively, to the former Chief Executive Officer and Chief Financial Officer of the Partnership. Related expenses are recorded as an administrative expense and as an increase in equity. On August 6, 2020, the Partnership announced that the Partnership's former Chief Executive Officer and Chief Financial Officer resigned, which resulted in 15,378 of the phantom units not vesting, resulting in a reduction in administrative expense and equity for the forfeited units. The remaining 4,861 unvested phantom units will vest in November 2021.

 

Dividends to Höegh LNG: The Partnership has declared and paid quarterly distributions totaling $7.1 million to Höegh LNG for each of the three months ended March 31, 2021 and 2020, respectively.

 

Receivables and payables from related parties

 

Amounts due from affiliates

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Amounts due from affiliates  $3,722   $3,639 

 

The amount due from affiliates is principally a receivable for time charter hire from a subsidiary of Höegh LNG for the Höegh Gallant time charter. The time charter hire is due 18 days from the receipt of the invoice. Time charter hire is invoiced at the end of the month in arrears.

 

F-27

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

Amounts due to owners and affiliates

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Amounts due to owners and affiliates  $2,531   $2,600 

 

As of March 31, 2021, and December 31, 2020, amounts due to owners and affiliates principally relate to trade payables for services provided by subsidiaries of Höegh LNG.

 

Revolving credit facility due to owners and affiliates

 

   As of 
   March 31,   December 31, 
(in thousands of U.S. dollars)  2021   2020 
Revolving credit facility due to owners and affiliates – non-current portion  $18,191   $18,465 

 

In August 2014, upon the closing of the IPO, the Partnership entered into an $85 million revolving credit facility with Höegh LNG, to be used to fund acquisitions and working capital requirements of the Partnership. The credit facility is unsecured and was repayable on January 1, 2020. 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. On April 8, and December 11, 2020, the Partnership was indemnified by Höegh LNG for its share of the joint ventures’ boil-off settlement payments by a reduction of $8.6 million and $3.3 million, respectively, on its outstanding balance on the revolving credit facility. On April 24, 2020, August 7, 2020 and October 23, 2020, the Partnership drew $4.5 million, $6.6 million and $10.7 million, respectively, on the revolving credit facility. On May 7, 2021, we drew $6.0 million on the $85 million revolving credit facility.

 

Related party agreements

 

In connection with the IPO the Partnership entered into several agreements including:

 

  (i) An $85 million revolving credit facility with Höegh LNG, which was undrawn at the closing of the IPO; and

 

  (ii) An omnibus agreement (the “omnibus agreement”) with Höegh LNG, the general partner, and Höegh LNG Partners Operating LLC (the “operating company”) governing, among other things:

 

  a. To what extent the Partnership and Höegh LNG may compete with each other;

 

  b. The Partnership’s rights of first offer on certain FSRUs and LNG carriers operating under charters of five or more years; and

 

  c. Höegh LNG’s provision of certain indemnities to the Partnership.

 

F-28

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

Existing agreements remained in place following the IPO for provision of certain services to the Partnership’s vessel owning joint ventures or entity, of which the material agreements are as follows:

 

  · The joint ventures are parties to ship management agreements with Höegh LNG Fleet Management AS (“Höegh LNG Management”) pursuant to which Höegh LNG Management provides the joint ventures with technical and maritime management and crewing of the Neptune and the Cape Ann, and Höegh LNG AS (“Höegh Norway”) is a party to a sub-technical support agreement with Höegh LNG Management pursuant to which Höegh LNG Management provides technical support services with respect to the PGN FSRU Lampung; and

 

  · The joint ventures are parties to commercial and administration management agreements with Höegh Norway, and PT Hoegh LNG Lampung is a party to a technical information and services agreement with Höegh Norway.

 

Subsequent to the IPO, the Partnership has acquired vessel owning entities. Existing agreements remained in place following the acquisition for the time charter of the Höegh Gallant and receipt of certain services, of which the material agreements are as follows:

 

  · Hoegh LNG Cyprus Limited acting through its Egyptian Branch had a Lease and Maintenance Agreement (the “time charter”) with EgyptCo for the lease and maintenance of the Höegh Gallant and the provision of crew and certain ship management services for a combined daily hire rate. The time charter started in April 2015 and expired in April 2020;

 

  · Hoegh LNG Cyprus Limited acting through its Egyptian Branch is party to a ship management agreement with Höegh LNG Management pursuant to which Höegh LNG Management provides the technical management of the Höegh Gallant, and Hoegh LNG Maritime Management Pte. Ltd. (“Höegh Maritime Management”) is a party to a secondment agreement, as amended, with Hoegh LNG Cyprus Limited pursuant to which Höegh Maritime Management provides qualified crew for the Höegh Gallant; and

 

  · Hoegh LNG Cyprus Limited acting through its Egyptian Branch is party to a management agreement with Höegh Norway, pursuant to which Höegh Norway provides administrative, commercial and technical management services, each as instructed from time to time by Hoegh LNG Cyprus Limited.

 

Existing agreements remained in place for the time charter of the Höegh Grace following the acquisition and receipt of certain services, of which the material agreements are as follows:

 

  · a ship management agreement with Höegh LNG Management pursuant to which Höegh LNG Management provides technical and maritime management services;

 

  · a manning agreement with Höegh Fleet Services Philippines Inc. to recruit and engage crew for the vessel;

 

  · a technical services agreement with Höegh Norway to provide technical services for the vessel;

 

  · a management consulting agreement with Höegh Norway to provide support related to certain management activities;

 

  · a crew recruitment consulting services agreement with Höegh Maritime Management to provide professional consulting services in connection with recruitment of crew and other employees;

 

  · an agreement for provision of professional payment services with Höegh Maritime Management to provide services in connection with the payment of monthly salaries to the crew and employees working on the vessel; and

 

  · a spare parts procurement and insurance services agreement with Höegh LNG Management to arrange for the supply of spare parts and the insurance coverage for the vessel.
     

In December 2019, the Partnership and the operating company entered into an administrative services agreement with Höegh Norway, pursuant to which Höegh Norway provides certain administrative services to the Partnership.

 

F-29

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

On April 30, 2020, the Partnership entered into a lease and maintenance agreement with a subsidiary of Höegh LNG for the time charter of the Höegh Gallant and the provision of crew and certain ship management services for use as either an FSRU or an LNG carrier for a combined daily hire rate. The terms of the agreement were approved by the Partnership’s board of directors and the conflicts committee. The Subsequent Charter commenced on May 1, 2020 and expires July 31, 2025. 

 

Indemnifications 

 

Pursuant to a letter agreement dated August 12, 2015, Höegh LNG confirmed that the indemnification provisions of the omnibus agreement include indemnification for all non-budgeted, non-creditable Indonesian value added taxes and non-budgeted Indonesian withholding taxes, including any related impact on cash flow from PT Hoegh LNG Lampung and interest and penalties associated with any non-timely Indonesian tax filings related to the ownership or operation of the PGN FSRU Lampung and the Mooring whether incurred (i) prior to the closing date of the IPO, (ii) after the closing date of the IPO to the extent such taxes, interest, penalties or related impact on cash flows relate to periods of ownership or operation of the PGN FSRU Lampung and the Mooring and are not subject to prior indemnification payments or deemed reimbursable by the charterer under its audit of the taxes related to the PGN FSRU Lampung time charter for periods up to and including June 30, 2015, or (iii) after June 30, 2015 to the extent withholding taxes exceed the minimum amount of withholding tax due under Indonesian tax regulations due to lack of documentation or untimely withholding tax filings.

 

No indemnification claims were filed or received for the three months ended March 31, 2021 and 2020.

 

Under the contribution, purchase and sale agreement entered into with respect to the purchase of the Höegh Gallant entities, Höegh LNG will indemnify the Partnership for:

 

  1. losses from breach of warranty;

 

  2. losses related to certain environmental and tax liabilities attributable to the operation of the Höegh Gallant prior to the closing date;

 

  3. all capital gains tax or other export duty incurred in connection with the transfer of the Höegh Gallant outside of Höegh LNG Cyprus Limited’s permanent establishment in a Public Free Zone in Egypt;

 

  4. any recurring non-budgeted costs owed to Höegh LNG Management with respect to payroll taxes;

 

  5. any non-budgeted losses suffered or incurred in connection with the commencement of services under the time charter with EgyptCo or EgyptCo’s time charter with EGAS; and

 

  6. liabilities under the Gallant/Grace facility not attributable to the Höegh Gallant.

  

No indemnification claims were filed or received for the three months ended March 31, 2021 and 2020.

 

F-30

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

Under the contribution, purchase and sale agreements entered into with respect to the acquisitions of the 51% and 49% ownership interests in the Höegh Grace entities, Höegh LNG will indemnify the Partnership for:

 

  1. losses from breach of warranty;

 

  2. losses related to certain environmental liabilities, damages or repair costs and tax liabilities attributable to the operation of the Höegh Grace prior to the closing date;

 

  3. any recurring non-budgeted costs owed to tax authorities with respect to payroll taxes, taxes related to social security payments, corporate income taxes (including income tax for equality and surcharge on income tax for equality), withholding tax, port associations, local Cartagena tax, and financial transaction tax, including any penalties associated with taxes to the extent not reimbursed by the charterer; and

 

  4. any non-budgeted losses suffered or incurred in connection with commencement of services under the Höegh Grace charter with SPEC.

 

No indemnification claims were filed or received for the three months ended March 31, 2021 and 2020.

 

On September 27, 2017, the Partnership entered into an indemnification agreement with Höegh LNG with respect to the boil-off claims under the Neptune and Cape Ann time charters, pursuant to which Höegh LNG will, among other things, indemnify the Partnership for its share of any losses and expenses related to or arising from the failure of either Neptune or Cape Ann to meet the performance standards related to the daily boil-off of LNG under their respective time charters (including any cash impact that may result from any settlement with respect to such claims). For the year ended December 31, 2020, the Partnership was indemnified by Höegh LNG for its share of the joint-ventures boil-off settlement payments to its charter by a reduction of $11.9 million on its outstanding balance on the $85 million revolving credit facility from Höegh LNG. Indemnification payments and the non-cash settlements were recorded as contribution to equity and increases to equity respectively. On March 12, 2021, the partnership was indemnified by Höegh LNG for its share of the joint ventures performance claims for the year ended December 31, 2020 by a reduction of $0.3 million in its outstanding balance on the $85 million revolving credit facility from Höegh LNG. No indemnification claims were filed or received for the three months ended March 31, 2020.

 

F-31

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

12. Financial Instruments

 

Fair value measurements

 

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

 

Cash and cash equivalents and restricted cash– The fair value of the cash, cash equivalents and restricted cash approximates its carrying amounts reported in the consolidated balance sheets.

 

Amounts due from (to) owners and affiliates – The fair value of the non-interest-bearing receivables or payables approximates their carrying amounts reported in the consolidated balance sheets since the receivables or payables are to be settled consistent with trade receivables and payables.

 

Derivative instruments – The fair values of the interest rate swaps are estimated based on the present value of cash flows over the term of the instruments based on the relevant LIBOR interest rate curves, adjusted for the subsidiary’s credit worthiness and the credit worthiness of the counterparty to the derivative.

 

Advances (shareholder loans) to joint ventures – The fair values of the fixed rate subordinated shareholder loans are estimated using discounted cash flow analyses based on rates currently available for debt with similar terms and remaining maturities and the current credit worthiness of the joint ventures.

 

Lampung and $385 million facilities – The fair values of the variable rate debt are estimated based on the present value of cash flows over the term of the instruments based on the estimated currently available margins and LIBOR interest rates as of the balance sheet date for debt with similar terms and remaining maturities and the current credit worthiness of the Partnership.

 

Revolving credit due to owners and affiliates – The fair value of the variable rate debt is estimated based on the present value of cash flows over the term of the instruments based on the estimated currently available margins and LIBOR interest rates as of the balance sheet date for debt with similar terms and remaining maturities and the current credit worthiness of the Partnership.

 

The fair value estimates are categorized by a fair value hierarchy based on the inputs used to measure fair value. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value as follows:

 

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

F-32

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis, as well as the estimated fair value of the financial instruments that are not accounted for at a fair value on a recurring basis. Trade payables and receivables for which the estimated fair values are equivalent to carrying values are not specified below.

 

       As of   As of 
       March 31, 2021   December 31, 2020 
       Carrying   Fair   Carrying   Fair 
       amount   Value   Amount   value 
       Asset   Asset   Asset   Asset 
(in thousands of U.S. dollars)  Level   (Liability)   (Liability)   (Liability)   (Liability) 
Recurring:                         
Cash and cash equivalents   1   $27,070    27,070    31,770   $31,770 
Restricted cash   1    19,110    19,110    19,293    19,293 
Derivative instruments   2    (20,078)   (20,078)   (26,475)   (26,475)
Other:                         
Amounts due from affiliate   2    3,722    3,722    3,639    3,639 
Advances (shareholder loans) to joint ventures   2    4,236    4,358    4,153    4,305 
Current amounts due to owners and affiliates   2    (2,531)   (2,531)   (2,600)   (2,600)
Lampung facility   2    (90,486)   (94,150)   (94,960)   (99,295)
$385 million facility   2    (313,461)   (316,703)   (319,629)   (323,342)
Revolving credit facility due to owners and affiliates   2   $(18,191)   (16,970)   (18,465)  $(16,987)

 

Financing receivables and net investment in financing lease

 

The following table contains a summary of the class of financial asset, year of origination and the method by which the credit quality is monitored on a quarterly basis:

 

            As of 
Class
(in thousands of U.S. dollars)
 

Year

  Credit Quality
Indicator
  Grade 

March 31,

2021

   December 31, 2020 
Advances/shareholder loans to joint ventures  2006  Collection experience  Performing  $4,236   $4,153 
Net investment in financing lease  2014  Credit Information  Performing  $273,056   $274,257 

 

The shareholder loans to joint ventures are classified as advances to joint ventures in the consolidated balance sheet. Refer to note 8.

 

For the three months ended March 31, 2021, there was no change in the allowance for expected credit losses. For the year ended December 31, 2020, there was no change in the allowance for expected credit losses following the cumulative effect of adopting the standard on Financial Instruments – Credit Losses: Measurement of Credit Losses on January 1, 2020. For the net investment in financing lease, the Partnership monitors quarterly actual credit losses, forecasts of LNG demand and changes in charterer or guarantor-specific publicly available financial and credit information in developing expected credit losses. The Partnership has never incurred actual credit losses related to the net investment in financing lease. The Partnership measures the allowance for credit losses for the net investment in financing lease using the probability of default and loss given default method.

 

F-33

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

13. Risk management, derivative instruments and concentrations of risk

 

Derivative instruments can be used in accordance with the overall risk management policy.

 

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 reduces the exposure to interest rate variability on the Partnership’s outstanding floating-rate debt over the life of the interest rate swaps. As of March 31, 2021 and 2020, there were interest rate swap agreements related to the Lampung facility ("Lampung interest rate swaps") and the commercial tranche of the $385 million facility ("$385 million interest rate swaps") floating rate debt that are designated as cash flow hedges for accounting purposes. As of March 31, 2021, the following interest rate swap agreements were outstanding:

 

          Fair        
          value        
   Interest      carrying      Fixed 
   rate  Notional   amount      interest 
(in thousands of U.S. dollars)  index  amount   liability   Term  rate (1) 
LIBOR-based debt                     
Lampung interest rate swaps (2)  LIBOR  $93,194   $(4,440)  Sep 2026   2.800%
$385 million facility swaps (2)  LIBOR  $55,608   $(4,227)  Jan 2026   2.941%
$385 million facility swaps (2)  LIBOR  $55,608   $(3,969)  Oct 2025   2.838%
$385 million facility swaps (2)  LIBOR  $55,608   $(3,807)  Jan 2026   2.735%
$385 million facility swaps (2)  LIBOR  $55,608   $(3,635)  Jan 2026   2.650%

 

1) Excludes the margins paid on the floating-rate debt.

2) All interest rate swaps are U.S. dollar denominated and principal amount reduces quarterly from the effective date of the interest rate swaps.

 

The Borrower under the Lampung facility entered five forward starting swap agreements with identical terms for a total notional amount of $237.1 million with an effective date of March 17, 2014. The swaps amortize over 12 years to match the outstanding balance of the Lampung facility and exchange 3-month USD LIBOR variable interest payments for fixed rate payments at 2.8%. The interest rate swaps were designated for accounting purposes as cash flow hedges of the variable interest payments on the Lampung facility. As of December 29, 2014, a prepayment of $7.9 million on the Lampung facility occurred which resulted in an amendment of the original interest rate swaps and the hedge was de-designated for accounting purposes. The other terms of the amended interest rate swaps did not change but the nominal amount of the interest rate swaps was reduced to match the outstanding debt. The amended interest rate swaps were re-designated as a cash flow hedge for accounting purposes.

 

F-34

 

 

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, unless otherwise indicated)

 

As of December 31, 2018, the Partnership had entered into forward starting interest rate swaps with a nominal amount of $130.0 million to hedge part of the interest rate risk on the floating element of the interest rate for the commercial tranches of the $385 million facility. The Partnership makes fixed payments of 2.941% and 2.838%, based on a nominal amount of $65.0 million for each, in exchange for floating payments. The interest rate swaps were designated for accounting purposes as cash flow hedges of the variable interest payments for $130.0 million of the commercial tranches of the $385 million facility which was expected to be drawn and was drawn on January 31, 2019. In February 2019, the Partnership entered into interest rate swaps related to the $385 million facility with a nominal amount of $127.7 million for which the Partnership makes fixed payments of 2.735% and 2.650% based on nominal amount of $63.8 million for each. The interest rate swaps were designated for accounting purposes as cash flow hedges of the variable interest payments for $127.7 million of the commercial tranches of the $385 million facility. The swaps amortize over approximately 7 years to match the outstanding balances of the commercial tranches of the $385 million facility until the maturity dates. The export credit tranches have a fixed interest rate and, therefore, no variability in cash flows as a result of changes in interest rates.

 

The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the consolidated balance sheets. All derivatives are designated as cash flow hedging instruments.

 

Fair value of derivative instruments

 

   Current   Long-term   Current