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Höegh LNG Partners LP – The Floating LNG Infrastructure MLP
3Q16 Financial ResultsNovember 17, 2016
4Q16 Financial ResultsFebruary 28, 2016
Forward-Looking Statements
2
This presentation contains certain forward-looking statements concerning future events and our operations, performance and financial condition. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” “plan,” “intend” or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: FSRU and LNG carrier market trends, including hire rates and factors affecting supply and demand; our anticipated growth strategies; our anticipated receipt of dividends and repayment of indebtedness from subsidiaries and joint ventures; the effects of volatility in global prices for crude oil and natural gas; the effect of the worldwide economic environment; turmoil in the global financial markets; fluctuations in currencies and interest rates; general market conditions, including fluctuations in hire rates and vessel values; changes in our operating expenses, including drydocking and insurance costs; our ability to make or increase cash distributions on the units and the amount of any such distributions; our ability to comply with financing agreements and the expected effect of restrictions and covenants in such agreements; the future financial condition of our existing or future customers; our ability to make additional borrowings and to access public equity and debt capital markets; planned capital expenditures and availability of capital resources to fund capital expenditures; the exercise of purchase options by customers; our ability to maintain long-term relationships with our customers; our ability to leverage the relationships of Höegh LNG Holdings (“HLNG”) and its reputation in the shipping industry; our ability to purchase the 49% interest in the Höegh Grace entities or additional vessels from Höegh LNG in the future; our ability to integrate and realize the anticipated benefits from the acquisition of the 51% interest in the Höegh Grace entities; our continued ability to enter into long-term, fixed-rate charters; the operating performance of our vessels; our ability to maximize the use of our vessels, including the redeployment or disposition of vessels no longer under long-term charters; expected pursuit of strategic opportunities, including the acquisition of vessels; our ability to compete successfully for future chartering and newbuilding opportunities; timely acceptance of our vessels by their charterers; termination dates and extensions of charters; the cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards, as well as standard regulations imposed by our charterers applicable to our business; demand in the FSRU sector or the LNG shipping sector in general and the demand for our vessels in particular; availability of skilled labor, vessel crews and management; our incremental general and administrative expenses as a publicly traded limited partnership and our fees and expenses payable under the ship management agreements, the technical information and services agreement and the administrative services agreements; the anticipated taxation of Höegh LNG Partners LP and distributions to our unitholders; estimated future maintenance and replacement capital expenditures; our ability to retain key employees; customers’ increasing emphasis on environmental and safety concerns; potential liability from any pending or future litigation; potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists; future sales of our common units in the public market; our business strategy and other plans and objectives for future operations; our ability to successfully remediate any material weaknesses in our internal control over financial reporting and our disclosure controls and procedures; and other factors listed from time to time in the reports and other documents that we file with the SEC, including our Annual Report on Form 20-F for the year ended December 31, 2015 and subsequently quarterly reports on Form 6-K. All forward-looking statements included in this presentation are made only as of the date hereof. 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.
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Glossary
“HMLP” – Höegh LNG Partners LP
“HLNG” – Höegh LNG Holdings Ltd.
“Höegh LNG Group” – HMLP and HLNG
“Grace Holding” – The sole owner of the entities that own and operate the Höegh Grace
“FSRU” – Floating Storage and Regasification Unit
“ABKN” – AB Klaipedos Nafta
“EGAS” – Egyptian Natural Gas Holding Company
“PGN” – Perusahaan Gas Negara
“GNL Penco” – Import terminal in Chile (JV of Biobiogenera , Cheniere and EDF)
“SPEC” – Sociedad Portuaria El Cayao S.A. E.S.P. (JV of Promigas and private equity)
“GEI” – Global Energy Infrastructure Ltd.
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HMLP Fourth Quarter Highlights
(1) Adjusts for share of gains for derivatives held by joint ventures for operating income and all gains on derivatives for net income(2) Segment EBITDA is a non-GAAP financial measure. Please see Appendix for a reconciliation of Segment EBITDA to net income, the most directly comparable GAAP financial measure
Three months endedDecember 31,
(in millions of U.S. dollars) 2016 2015Time Charter Revenue 23.3 23.4Operating income 33.2 22.2Net income 24.9 17.1Excluding unrealized gains on derivative instruments:(1)
Operating income 17.1 16.8Net income 8.2 11.2
Segment EBITDA(2) 25.8 25.7Excluded from Segment EBITDA:Principal payment of direct financing lease 0.8 0.8Amortization in revenues for above market contracts 0.6 0.6Amortization for deferred revenue (0.5) –
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Stable Cash Flows, Fully Covered Distributions and Growth
15.2 15.2 16.1
25.724.1 24.3 24.9 25,8
0
5
10
15
20
25
30
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Segment EBITDA(1)(2),$m
9,6 9,1 9,212,9
11,0 12,7 12,5 13,3
0,0
5,0
10,0
15,0
20,0
25,0
30,0
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Distributable Cash Flow(1), $m
0,3375 0,3375 0,3375
0,4125 0,4125 0,4125 0,4125 0,4125
0,0
0,1
0,2
0,3
0,4
0,5
0,6
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Distribution, $/unit
+22%
Distribution
Coverage(1):1.18x 1.0x 1.15x 1.14x 0.97x(3)
1.21x(4)
6,8 6,8 7,69,9
8 7,9 8.8 8.1
0,0
5,0
10,0
15,0
20,0
25,0
30,0
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Adj. Net Income(1), $m
(1) Adjusted Net Income, Segment EBITDA, Distributable cash flow and Coverage are non-GAAP financial measures. For a definition of each of these non-GAAP financial measures and reconciliations to their most directly comparable US GAAP financial measure, please see the Appendix.
(2) Excludes principal payment on direct financing lease, amortization in revenues for above market contracts and equity in earnings of JVs: amortization for deferred revenue.(3) 0.97x based on distribution for 4Q16 (4) Reflects distribution coverage on units existing prior to common unit offering in December 2016.
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Successful Follow-on Offering and Acquisition of Höegh Grace
Acquisition 51% Höegh Grace
$370 million gross valuation
Minimum 10-year contract
Closed Jan 3, 2017
Management has recommended to theboard 4-5% distribution increase for 1Q17
Follow-on $112 million net proceeds
$92 million cash consideration for HöeghGrace
Upsized on strong demand
New unit count of 32,911,159(1)
HMLP trading liquidity much improved
(1) Consisting of 19,755,099 common units and 13,156,060 subordinated units
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HMLP Fleet Enlarged and Diversified to Five FSRUs
Neptune•Operating as an FSRU in Turkey under subcontract from Engie•Higher revenue and cost in JV segment reflect preparatory work in 4Q16
GDF Suez Cape Ann•Departed China – returned to Engie’s LNGC pool pending future FSRU project –contract rate remains unchanged
PGN FSRU Lampung •Located offshore Sumatra, Indonesia, to replace imported liquid fuels with domestic LNG to support electricity demand
Höegh Gallant•Chartered by EGAS to cover Egypt’s deficit in domestic gas supply•Maintenance in 1Q17 expected to reduce hire by approximately 5 days equivalent
Höegh Grace•Chartered by SPEC to service a new LNG import terminal in Cartagena, on theAtlantic coast of Colombia
Unit Type Ownership Built Region Charterer 2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
Current HMLP FleetNeptune FSRU 50% 2009 Turkey EngieGDF Suez Cape Ann FSRU 50% 2010 China EngiePGN FSRU Lampung FSRU 100% 2014 Indonesia PGNHöegh Gallant FSRU 100% 2014 Egypt EGAS/HLNGHöegh Grace FSRU 51% 2016 Colombia SPEC
Contracted Revenue Option
Long-Term Contracts with Stable Cash Flows and Distribution Coverage
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(1) Economic interest; ownership interest 49%(2) Previously GDF-Suez(3) As of December 31, 2016
(2)
(1)
(2)
12.5 Years(3) average remaining contract length, with earliest expiry in 2025(4)
No direct exposure to volatile commodity prices and limited Opex exposure(5)
Strong sovereign and utility counterparties reliant on HMLP for crucial energy infrastructure
– Additional guarantee from HLNG in case of FSRU Höegh Gallant
Fixed Rate, Contracted Cash Flow Supports Growing, Long-Term Distributions
(4) Includes HMLP option to charter FSRU Höegh Gallant to HLNG after end of EGAS contract(5) Extent of Opex exposure depends on contract
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Income Statement
Three months ended Year ended December 31, December 31,
(in thousands of U.S. dollars) 2016 2015 2016 2015REVENUES
Time charter revenues $ 23,308 23,426 91,107 $ 57,465 Total revenues 23,308 23,426 91,107 57,465 OPERATING EXPENSES
Vessel operating expenses (3,372) (4,136) (16,080) (9,679)Construction contract expenses — — (315) —Administrative expenses (2,682) (2,435) (9,718) (8,733)Depreciation and amortization (2,639) (2,630) (10,552) (2,653)
Total operating expenses (8,693) (9,201) (36,665) (21,065)Equity in earnings (losses) of joint ventures 18,632 8,012 16,622 17,123
Operating income (loss) 33,247 22,237 71,064 53,523 FINANCIAL INCOME (EXPENSE), NET
Interest income 160 293 857 7,568 Interest expense (6,135) (6,517) (25,178) (17,770)Gain (loss) on derivative instruments 661 482 1,839 949 Other items, net (554) 632 (3,333) (2,678)
Total financial income (expense), net (5,868) (5,110) (25,815) (11,931)Income (loss) before tax 27,379 17,127 45,249 41,592
Income tax expense (2,446) (52) (3,872) (313)Net income (loss) $ 24,933 17,075 41,377 $ 41,279
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Segment Reporting
(1) Segment EBITDA is a non-GAAP financial measure. For a definition of Segment EBITDA and reconciliations to net income, the most directly comparable US GAAP financial measure, please see the Appendix.
(2) Eliminations reverse each of the income statement line items of the proportional consolidation amounts for Joint venture FSRUs and record the Partnership’s share of the Joint venture FSRUs’ net income (loss) to Equity in earnings (loss) of joint ventures.
Three months ended December 31, 2016Joint venture
Majority FSRUs Totalheld (proportional Segment Elimin- Consolidated
(in thousands of U.S. dollars) FSRUs consolidation) Other reporting ations (2) reportingTime charter revenues $ 23,308 11,218 — 34,526 (11,218) $ 23,308 Total revenues 23,308 11,218 — 34,526 23,308 Operating expenses (3,999) (2,626) (2,055) (8,680) 2,626 (6,054)Equity in earnings (losses) of joint ventures — — — — 18,632 18,632 Segment EBITDA(1) 19,309 8,592 (2,055) 25,846 Depreciation and amortization (2,639) (2,395) — (5,034) 2,395 (2,639)Operating income (loss) 16,670 6,197 (2,055) 20,812 33,247 Gain (loss) on derivative instruments 661 16,120 — 16,781 (16,120) 661 Other financial income (expense), net (5,412) (3,685) (1,117) (10,214) 3,685 (6,529)Income (loss) before tax 11,919 18,632 (3,172) 27,379 — 27,379 Income tax expense (2,430) — (16) (2,446) — (2,446)Net income (loss) $ 9,489 18,632 (3,188) 24,933 — $ 24,933
Segment Reporting – 2015 Comparison
11
(1) Segment EBITDA is a non-GAAP financial measure. For a definition of Segment EBITDA and reconciliations to net income, the most directly comparable US GAAP financial measure, please see the Appendix.
(2) Eliminations reverse each of the income statement line items of the proportional consolidation amounts for Joint venture FSRUs and record the Partnership’s share of the Joint venture FSRUs’ net income (loss) to Equity in earnings (loss) of joint ventures.
Three months ended December 31, 2015Joint venture
Majority FSRUs Totalheld (proportional Segment Elimin- Consolidated
(in thousands of U.S. dollars) FSRUs consolidation) Other reporting ations (2) reportingTime charter revenues $ 23,426 10,800 — 34,226 (10,800) $ 23,426 Total revenues 23,426 10,800 — 34,226 23,426 Operating expenses (4,962) (1,956) (1,609) (8,527) 1,956 (6,571)Equity in earnings (losses) of joint ventures — — — — 8,012 8,012 Segment EBITDA(1) 18,464 8,844 (1,609) 25,699 Depreciation and amortization (2,630) (2,286) — (4,916) 2,286 (2,630)Operating income (loss) 15,834 6,558 (1,609) 20,783 22,237 Gain (loss) on derivative instruments 482 5,416 — 5,898 (5,416) 482 Other financial income (expense), net (4,632) (3,962) (960) (9,554) 3,962 (5,592)Income (loss) before tax 11,684 8,012 (2,569) 17,127 — 17,127 Income tax expense (72) — 20 (52) — (52)Net income (loss) $ 11,612 8,012 (2,549) 17,075 — $ 17,075
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Financial Income and Expense
Three months ended December 31,
(in thousands of U.S. dollars) 2016 2015 Interest income $ 160 $ 293 Interest expense:Interest expense (5,389) (5,696)
Commitment fees (279) (287)
Amortization of debt issuance cost and fair value of debt assumed (467) (534)Total interest expense (6,135) (6,517)Gain (loss) on derivative instruments 661 482 Other items, net:Unrealized foreign exchange gain (loss) 140 1,245 Realized foreign exchange gain (loss) (94) 54 Bank charges, fees and other (45) (39)Withholding tax on interest expense and other (555) (628)Total other items, net (554) 632 Total financial income (expense), net $ (5,868) $ (5,110)
13
Balance Sheet
(1) In November 2015, the FASB issued revised guidance for the classification of deferred taxes, Balance Sheet Classification of Deferred Taxes. Under the new guidance, companies are required to classify all deferred tax assets and liabilities as non-current on the balance sheet instead of separating deferred taxes into current and non-current amounts. The Partnership is implementing the guidance as of December 31, 2016 and has adjusted the balance sheet as of December 31, 2015 on a retrospective basis. The reclassification has reduced current assets and liabilities by $381 and $450, respectively, and increased long-term assets and long-term liabilities by $381 and $450, respectively as of December 31, 2015.
As of As ofDecember 31, December 31,
(in thousands of U.S. dollars) 2016 2015ASSETS Current assets
Cash and cash equivalents $ 18,915 $ 32,868 Restricted cash 8,055 10,630 Other current assets 23,586 24,056
Total current assets 50,556 67,554 Long-term assets
Restricted cash 14,154 15,198 Cash designated for acquisition 91,768 —Vessels, net of accumulated depreciation 342,591 353,078 Net investment in direct financing lease 286,626 290,111 Other long-term assets 24,772 37,802
Total long-term assets 759,911 696,189 Total assets $ 810,467 $ 763,743 LIABILITIES AND EQUITY Current liabilities
Current portion of long-term debt $ 32,208 $ 32,208 Amounts due to owners and affiliates 1,374 10,604 Other current liabilities 24,234 29,409
Total current liabilities 57,816 72,221 Long-term liabilities
Long-term debt 300,440 330,635 Revolving credit and seller’s credit due to owners and affiliates 43,005 47,000 Other long-term liabilities 44,416 64,089
Total long-term liabilities 387,861 441,724 Total liabilities 445,677 513,945 Total Equity 364,790 249,798 Total liabilities and equity $ 810,467 $ 763,743
Distributable Cash Flow
14
(1) Segment EBITDA and Distributable cash flow are non-GAAP measures. For a definition of each of these non-GAAP measures and reconciliations to their comparable US GAAP financial measures, please see the Appendix.
(2) The Partnership’s interest in the joint ventures’ interest income, interest expense and amortization of debt issuance cost is $2, $3,642 and $45, respectively. (3) Computed as distribution per unit multiplied by units outstanding prior to December offering to fund 2017 acquisition of 51% interest in Grace Holding to compute Coverage ratio – Pre-
offering units which is comparable to prior periods. Grace Holding will contribute to DCF in Q1 2017 but the increase in common units was in December 2016.
Three months ended(in thousands of U.S. dollars) December 31, 2016Segment EBITDA (1) $ 25,846 Cash collection/Principal payment on direct financing lease 824 Amortization in revenues for above market contracts 605 Equity in earnings of JVs: Amortization of deferred revenue (528)Interest income (2)
162 Interest expense (2)
(9,822)Amortization of debt issuance cost (2) and fair value of debt assumed 512 Other items, net (554)Unrealized foreign exchange losses (gains) (141)Current income tax expense (99)Other adjustments:Indemnification paid by Höegh LNG after quarter end for non-budgeted expenses & losses 404 Estimated maintenance and replacement capital expenditures (3,870)Distributable cash flow (DCF) (1) $ 13,339
Declared distribution 13,717
Coverage ratio – Declared distribution 0.97x
Distribution on units existing prior to December 2016 offering 10,971(3)
Coverage ratio – Pre-offering units 1.21x
Reconciliation of Distributable Cash Flow to Net Cash Provided by Operating Activities
15
(1) Distributable cash flow is a non-GAAP liquidity measure. For a definition of distributable cash flow, please see the Appendix.
Three months ended
(in thousands of U.S. dollars) December 31, 2016
Distributable cash flow (1)$ 13,339
Indemnification paid by Höegh LNG after quarter end for non-budgeted expenses & losses (404)
Estimated maintenance and replacement capital expenditures 3,870 Equity in earnings of JVs: Amortization of deferred revenue 528 Equity in earnings of JVs: Amortization of debt issuance cost (45)Equity in earnings of JVs: Depreciation and amortization (2,395)Equity in earnings of JVs: Gain (loss) on derivative instruments 16,120 Equity in losses (earnings) of joint ventures (18,632)
Cash collection/Principal payment on direct financing lease (824)
Changes in accrued interest expense and interest income 987
Other adjustments 302
Changes in working capital (7,366)
Net cash provided by operating activities $ 5,479
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Accounting for 51% Höegh Grace
HMLP will consolidate in its financial statements the Höegh Grace for Q1 2017 with:
• 100% of time charter revenues and 100% of the expenses for the Höegh Grace in the individual line items of the income statement
• Income statement will reflect:
- Non-controlling interest for the 49% of the net income of the Höegh Grace
- Controlling interest for HMLP’s share of net income
• 100% of assets and 100% of the liabilities for the Höegh Grace in the individual line items of the balance sheet
• Balance sheet will reflect as a separate component of total equity:
- Non-controlling interest
- Partner’s equity
Segment EBITDA will include 51% of the Höegh Grace’s EBITDA in the segment profit measure
Höegh LNG Group’s FSRUs and the Opportunity Set for the Future
17
Smaller markets targeted by barges and conversions
In Operation 20
Under Construction 12
Planned or Possible >40
Source: Press releases / public disclosures
(2014)
(2015)(2017)
(2018)
(2018/19)
(T+12mo)
(2020)
(2017)
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Another Milestone in HMLP’s Growth Trajectory
51% of Höegh Grace is the first step on path to HMLP’s goal of doubling in size by 2020 and diversifying its portfolio
Increased diversification set to add to a strong track-record of project execution
Strong FSRU fundamentals and support of HLNG underpin trajectory
Anticipated(1)
Expected to be offered to HMLP at start of 5yr+ contract(1)
T Date of orderExisting HMLP Fleet
(2019)
(1) There can be no assurance that any acquisition or dropdown transactions will be consummated.
Unit Type Ownership Built Region Charterer 2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
Dropdown Candidates at HLNGIndependence FSRU 100% 2014 Lithuania ABKNHöegh Grace FSRU 49% 2016 Colombia SPECHN2552 FSRU 100% 2017E Ghana Quantum PowerHN2865 FSRU 100% 2018E Pakistan GEILHN2909 FSRU 100% 2018E ‐ OpenSHI NB FSRU 100% 2019E Chile GNL Penco
Contracted Revenue Option
(2)
(1)
New Long-Term Contract Awards provide an opportunity to Drive Distribution Growth
19
(1) Subject to negotiation of definitive terms, approval by the conflicts committee of HMLP, the boards of directors of HMLP and HLNG and execution of definitive documentation. There can be no assurance that any transaction will be consummated.
(2) Dropdown requires charterer consent(3) Subject to various conditions
HLNG awarded two new FSRU contracts in 4Q17 – Ghana and Pakistan(3)
20 year contracts provide long-term stability and visibility
Participation of resource owning “supermajors” in Pakistan project
Accelerating FSRU Contracts Reflect LNG’s Attractiveness and Availability
2011 2012 2013 2014 2015 2016
BW Gas
Excelerate
Golar LNG
Sum 3 2 2 4 3 6
20
(1) Does not include cancelled projects, contract renewals and subletsSource: Press releases / public disclosures
Long-term FSRU contract award(1)
21
Höegh LNG Partners LP (NYSE:HMLP) – Investment Summary
• The only publicly listed FSRU pure play• Current fleet of five FSRUs on long-term, fixed-rate contracts
Pure Play Owner and Operator of FSRUs
• Average vessel age of 3.6 years(1)
• Meeting critical energy infrastructure needs• Leading player in highly concentrated FSRU market
Modern Fleet Providing Critical Energy Infrastructure
• Average remaining contract term of 12.5 years plus options(2)
• Earliest contract expiry in 2025(3), with no near-term debt maturities• No direct commodity exposure and limited Opex exposure(4)
Full Employment on Fixed, Long-term
Contracts
• Committed pipeline of high-quality dropdown assets • Dropdowns typically evaluated once assets go on long-term contract• Accretive acquisitions of FSRUs expected to drive distribution growth
Dropdown Pipeline for Built-in Distribution
Growth
• LNG is especially competitive fuel at current prices• Readily available LNG supply drives FSRU adoption globally• Oil and coal displacement with environmental benefits over both
Attractive FSRU Market Conditions
• Recognized leader in the LNG space for 40+ years• Extensive technical and maritime expertise and relationships• Favorable financing terms highlight value of sponsor support
Supportive, Industry-Leading
Sponsor
(1) As of December 31, 2016 including the Höegh Grace(2) As of December 31, 2016 including the Höegh Grace, 19.5 years including options(3) Includes HMLP option to charter FSRU Höegh Gallant to HLNG after end of EGAS contract(4) Extent of Opex exposure depends on vessel contract
Appendix
Non-GAAP Financial MeasuresAdjusted Net Income
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Adjusted Net Income is defined as net income adjusted for unrealized gains and losses on derivative instruments and foreign exchangegains and losses. The adjustment for unrealized gains and losses on derivative instruments includes our share of such gains and lossesrelated to the joint ventures accounted for under the equity method in addition to those gains and losses reflected as financial income(expense), net in the consolidated and combined carve-out statements of income. Adjusted Net Income is used as a supplementalfinancial measure by management to assess its operating performance. The Partnership believes that Adjusted Net Income assists itsmanagement and investors by increasing the comparability of its performance from period to period and against the performance of othercompanies in the industry that provide Adjusted Net Income information. This increased comparability is achieved by excluding thepotentially disparate effects between periods, which items are affected by different accounting solutions for interest rate swaps andswings in exchange rates which may significantly affect net income between periods. Adjusted Net Income should not be considered analternative to net income or any other measure of financial performance presented in accordance with U.S. GAAP. Adjusted Net Incomeexcludes some, but not all, items that affect net income, and these measures may vary among other companies. Therefore, Adjusted NetIncome as presented below may not be comparable to similarly titled measures of other companies. The following tables reconcileAdjusted Net Income to net income (loss), the comparable U.S. GAAP financial measure, for the periods presented:
Three months ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
(in thousands of U.S. dollars) 2015 2015 2015 2015 2016 2016 2016 2016
Net Income (Loss) $ 2,578 16,438 5,185 17,078 (1,040) 4,062 13,425 $ 24,933 Loss (gain) on derivatives in Majority held FRSUs (121) 8 (354) (482) (335) (326) (517) (661)Equity in earnings of JVs: Loss (gain) on derivatives in Joint Ventures 3,932 (9,871) 2,109 (5,416) 8,993 4,174 (4,139) (16,120)
Foreign exchange loss (gain) 426 246 643 (1,299) 337 27 66 (46)
Adjusted Net Income (Loss) $ 6,815 6,821 7,583 9,881 7,955 7,937 8,836 $ 8,106
Non-GAAP Financial MeasuresSegment EBITDA
24
Segment EBITDA. EBITDA is defined as earnings before interest, depreciation and amortization and taxes. Segment EBITDA is definedas earnings before interest, depreciation and amortization, taxes and other financial items. Other financial items consist of gains andlosses on derivative instruments and other items, net (including foreign exchange gains and losses and withholding tax on interestexpenses). Segment EBITDA is used as 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 EBITDAassists its management and investors by increasing the comparability of its performance from period to period and against theperformance of other companies in the industry that provide Segment EBITDA information. This increased comparability is achieved byexcluding the potentially disparate effects between periods or companies of interest, other financial items, depreciation and amortizationand taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis andwhich items may significantly affect net income between periods. The Partnership believes that including Segment EBITDA as a financialand operating measure benefits investors in (a) selecting between investing in it and other investment alternatives and (b) monitoring itsongoing financial and operational strength in assessing whether to continue to hold common units. Segment EBITDA is a non-GAAPfinancial measure and should not be considered as an alternative to net income, operating income or any other measure of financialperformance presented in accordance with U.S. GAAP. Segment EBITDA excludes some, but not all, items that affect net income, andthese measures may vary among other companies. Therefore, Segment EBITDA as presented below may not be comparable to similarlytitled measures of other companies. The following tables reconcile Segment EBITDA for each of the segments and the Partnership as awhole to net income (loss), the comparable U.S. GAAP financial measure, for the periods presented:
(1) Other financial items consist of gains and losses on derivative instruments and other items, net including foreign exchange gains or losses and withholding tax on interest expense.
25
Segment EBITDA
Three months ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
(in thousands of U.S. dollars) 2015 2015 2015 2015 2016 2016 2016 2016Reconciliation to net income (loss)Net income (loss) $ 2,578 16,438 5,185 17,075 (1,040) 4,062 13,425 $ 24,933
Interest income (2,427) (2,425) (2,423) (293) (273) (232) (192) (160)
Interest expense, net 3,800 3,710 3,744 6,517 6,406 6,354 6,283 6,135
Depreciation and amortization 8 8 8 2,630 2,630 2,636 2,647 2,639
Income tax expense 93 59 109 52 449 501 476 2,446
Other financial items (1) 979 942 922 (1,114) 702 636 261 3,685
Equity in earnings of JVs: Interest expense, net 4,027 4,089 4,029 3,968 3,865 3,787 3,755 2,395
Equity in earnings of JVs: Depreciation and amortization 2,177 2,309 2,456 2,286 2,379 2,376 2,378 (107)
Equity in earnings of JVs: Other financial items (1) 3,953 (9,897) 2,109 (5,422) 9,010 4,174 (4,139) (16,120)Segment EBITDA $ 15,187 15,233 16,139 25,699 24,128 24,294 24,893 $ 25,846
Distributable Cash Flow
26
Distributable cash flow represents Segment EBITDA adjusted for cash collections on principal payments on the direct financing lease, amortization inrevenues for above market contracts, amortization of deferred revenues for the joint ventures, interest income , interest expense less amortization of debtissuance cost and fair value of debt assumed, other items (net), unrealized foreign exchange losses (gains), current income tax expense, and otheradjustments including indemnification paid by Höegh LNG for non-budgeted expenses and losses and estimated maintenance and replacement capitalexpenditures. Cash collections on the direct financing lease investment with respect to the PGN FSRU Lampung consist of the difference between thepayments under the time charter and the revenues recognized as a financing lease (representing the repayment of the principal recorded as a receivable).Amortization in revenues for above market contracts consist of the non-cash amortization of the intangible for the above market time charter contract relatedto the acquisition of the Höegh Gallant. Amortization of deferred revenues for the joint ventures accounted for under the equity method consist of non-cashamortization to revenues of charterer payments for modifications and drydocking to the vessels. Estimated maintenance and replacement capitalexpenditures, including estimated expenditures for drydocking, represent capital expenditures required to maintain over the long-term the operating capacityof, or the revenue generated by, the Partnership's capital assets.
Distributable cash flow is presented starting with Total Segment reporting using the proportional consolidation method for the Partnership's 50% interests inthe joint ventures as shown in this Appendix. Therefore, the adjustments to Segment EBITDA include the Partnership's share of the joint venture'sadjustments. The Partnership believes distributable cash flow is an important liquidity measure used by management and investors in publicly tradedpartnerships to compare cash generating performance of the Partnership’s cash generating assets from period to period by adjusting for cash and non-cashitems that could potentially have a disparate effect between periods, and to compare the cash generating performance for specific periods to the cashdistributions (if any) that are expected to be paid to unitholders. The Partnership also believes distributable cash flow benefits investors in comparing its cashgenerating performance to other companies that account for time charters as operating leases rather than financial leases, or that do not have non-cashamortization of intangibles or deferred revenue. Distributable cash flow is a non-GAAP liquidity measure and should not be considered as an alternative tonet cash provided by operating activities, or any other measure of the Partnership’s liquidity or cash flows calculated in accordance with GAAP. Distributablecash flow excludes some, but not all, items that affect net cash provided by operating activities and the measures may vary among companies. For example,distributable cash flow does not reflect changes in working capital balances. Distributable cash flow also includes some items that do not affect net cashprovided by operating activities. Therefore, distributable cash flow may not be comparable to similarly titled measures of other companies. Distributable cashflow is not the same measure as available cash or operating surplus, both of which are defined by the Partnership's partnership agreement. The first tablebelow reconciles distributable cash flow to Segment EBITDA, which is reconciled to net income, the most directly comparable GAAP measure for SegmentEBITDA, in this Appendix. Refer to this Appendix for the definition of Segment EBITDA. The second table below reconciles distributable cash flow to netcash provided by operating activities, the most directly comparable GAAP measure for liquidity.
Distributable Cash Flow
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Three months ended March 31,
2015June 30,
2015September 30,
2015December 31,
2015March 31,
2016June 30,
2016September 30,
2016December 31,
2016(in thousands of U.S. dollars)Segment EBITDA $ 15,187 15,233 16,139 25,699 24,128 24,294 24,893 $ 25,846 Cash collection/Principal payment on direct financing lease 703 722 739 755 772 789 806 824 Amortization in revenues for above market contracts — — — 605 598 598 604 605
Equity in earnings of JVs: Amortization of deferred revenue — — — — (322) (509) (508) (528)Interest income 2,427 2,425 2,423 293 273 232 192 162
Interest expense (7,827) (7,799) (7,773) (10,485) (10,271) (10,141) (10,037) (9,822)Amortization of debt issuance cost and fair value of debt assumed 694 694 696 580 568 565 548 512
Other items, net (1,100) (934) (1,276) 632 (1,037) (962) (778) (554)
Unrealized foreign exchange losses (gains) 446 258 646 (1,245) (51) 18 63 (141)
Current income tax expense (177) (179) (185) (806) (108) (30) (86) (99)Other adjustments:Indemnification paid by Höegh LNG after quarter end for non-budgeted expenses & losses 1,797 1,149 310 751 291 1,701 699 404
Estimated maintenance and replacement capital expenditures (2,550) (2,428) (2,550) (3,870) (3,870) (3,870) (3,870) (3,870)Distributable cash flow $ 9,600 9,141 9,169 12,909 10,971 12,685 12,526 $ 13,339 Declared distribution 10,967 10,967 10,971 10,971 13,717 Coverage ratio 1.18x 1.0x 1.15x 1.14x 0.97x
Reconciliation of Distributable Cash Flow to Net Cash Provided by Operating Activities
28
Three months ended March 31,
2015June 30,
2015September 30,
2015December 31,
2015March 31,
2016June 30,
2016September 30,
2016December 31,
2016(in thousands of U.S. dollars)Distributable cash flow $ 9,600 9,141 9,169 12,909 10,971 12,685 12,526 $ 13,339 Indemnification paid by Höegh LNG after quarter end for non-budgeted expenses & losses (1,797) (1,149) (310) (751) (291) (1,701) (699) (404)Estimated maintenance and replacement capital expenditures 2,550 2,428 2,550 3,870 3,870 3,870 3,870 3,870 Equity in earnings of JVs: Amortization of deferred revenue — — — — 322 509 508 528
Equity in earnings of JVs: Amortization of debt issuance cost(46) (46) (46) (45) (45) (45) (45) (45)
Equity in earnings of JVs: Depreciation and amortization(2,177) (2,309) (2,456) (2,285) (2,379) (2,376) (2,378) (2,395)
Equity in earnings of JVs: Gain (loss) on derivative instruments(3,932) 9,871 (2,109) 5,416 (8,993) (4,174) 4,139 16,120
Equity in losses (earnings) of joint ventures2,122 (11,481) 249 (8,012) 6,708 1,866 (6,565) (18,632)
Cash collection/Principal payment on direct financing lease (703) (722) (739) (755) (772) (789) (806) (824)
Changes in accrued interest expense and interest income 836 (235) (270) 1,913 (113) (411) 53 987
Other adjustments 14 (114) 192 52 10 231 56 302
Changes in working capital 7,454 (578) 5,144 372 2,655 (2,172) 3,854 (7,366)
Net cash provided by (used in) operating activities $ 13,921 4,806 11,374 12,684 11,943 7,493 14,513 $ 5,479
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