0001603016--12-312022Q2false1525749815257498Hoegh LNG Partners LP0.280.040.760.550.280.040.760.58708932570893251811550418115504P10YP10YP10Y0.50The 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;The Partnership's consolidated book equity must be greater than the higher of (i) $200 million and (ii) 25% of total assets; and The Partnership's consolidated working capital (current assets, excluding marked-to-market value of any financial derivative, less current liabilities, excluding marked-to-market value of any financial derivative and the current portion of interest-bearing debt) shall at all times be greater than zero.The Partnership's consolidated free liquid assets (cash and cash equivalents or available draws on credit facilities) must equal or exceed the higher 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 millionThe primary financial covenants under the $385 million facility are as follows: The Partnership must maintain -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 -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 - 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 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

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                 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    

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    

HÖEGH LNG PARTNERS LP

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Table of Contents

Page

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

3

 

FORWARD LOOKING STATEMENTS

28

 

INDEX TO FINANCIAL STATEMENTS

F-1

 

Unaudited Condensed Interim Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021

F-2

 

Unaudited Condensed Interim Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021

F-3

 

Unaudited Condensed Interim Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

F-4

 

Unaudited Condensed Interim Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2022 and the Year Ended December 31, 2021

F-6

 

Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2022 and 2021

F-7

 

Notes to Unaudited Condensed Interim Consolidated Financial Statements

F-9

 

EXHIBITS

32

SIGNATURE

33

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 and six months ended June 30, 2022. 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 “New Fortress” refer to New Fortress Energy Inc. 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 June 30, 2022 and for the periods ended June 30, 2022 and 2021 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 25, 2022 (our “2021 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

100% availability of FSRUs for the second quarter of 2022
Reported total time charter revenues of $36.9 million for the second quarter of 2022 compared to $34.7 million of time charter revenues for the second quarter of 2021
Generated operating income of $22.3 million, net income of $13.1 million and limited partners’ interest in net income of $9.2 million for the second quarter of 2022 compared to operating income of $24.1 million, net income of $2.6 million and limited partners’ interest in net loss of $1.2 million for the second quarter of 2021
Operating income, net income and limited partners’ interest in net income (loss) were impacted by unrealized gains on derivative instruments for the second quarter of 2022 and 2021, mainly on the Partnership’s share of equity in earnings of joint ventures
On August 12, 2022, paid a cash distribution of $0.01 per common unit with respect to the second quarter of 2022
On August 15, 2022, paid a cash distribution of $0.546875 per 8.75% Series A cumulative redeemable preferred unit (“Series A preferred unit”), for the period commencing on May 16, 2022 to August 14, 2022
On May 25, 2022, the Partnership entered into a definitive merger agreement with Höegh LNG pursuant to which Höegh LNG will acquire, for cash, all of the outstanding publicly held common units of the Partnership, at a price of $9.25 per common unit for a total purchase price of approximately $167.6 million. In connection with the transaction, the Partnership’s incentive distribution rights will be cancelled. The Series A preferred units will remain outstanding. In connection with the transaction, the board of directors of the Partnership (the “Board of Directors”) directed the conflicts committee of the Board of Directors, comprised solely of directors unaffiliated with Höegh LNG (the “Conflicts Committee”), to consider Höegh LNG’s offer. The Conflicts Committee approved the merger agreement and determined that the merger agreement and the transactions contemplated thereby are in the best interests of the Partnership and the holders of the Partnership’s common units unaffiliated with Höegh LNG. Based on the recommendation of the Conflicts Committee, the Board of Directors

3

unanimously approved the merger agreement and recommended that the Partnership’s common unitholders approve the merger. The merger is subject to approval of the merger agreement and the transactions contemplated thereby by a majority of the outstanding common units of the Partnership and certain regulatory filings and customary closing conditions. Höegh LNG owns 45.7% of the common units and has entered into a support agreement with the Partnership committing to vote its common units in favor of the merger. The Partnership has established a record date of August 22, 2022 for a special meeting of the holders of the common units to take place on September 20, 2022 to vote on the proposed merger. Assuming the merger is approved by the unitholders, it is expected to close by the end of the third quarter.
On June 1, 2022, the SRV Joint Gas Two Ltd, a joint venture owned 50% by the Partnership, and the owner of the Cape Ann, closed the refinancing of the Cape Ann debt facility (the “New Cape Ann Facility”) which has an initial loan amount of $154.1 million and which is scheduled to be fully amortized with quarterly debt service over a period of 8 years based on an annuity repayment profile. The New Cape Ann Facility replaces the balloon amount of $169 million that was repaid under the previous debt facility secured by the Cape Ann. The difference in the loan amount was mainly financed by cash held by SRV Joint Gas Two Ltd and subordinated shareholder loans from the shareholders, including a new subordinated shareholder loan of $1.2 million from the Partnership. The New Cape Ann Facility bears interest at a rate equal to three months LIBOR plus a margin of 1.75%. The interest rate swaps entered into under the previous Cape Ann debt facility have a remaining tenor of 8 years and have been novated from the previous group of swap providers to the new lenders and restructured to match the New Cape Ann Facility's loan amount and amortization plan. The interest rate swaps are not reflected in the above-mentioned interest rate for the New Cape Ann Facility.

Our results of operations

Three Months Ended

Six Months Ended

June 30, 

June 30, 

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

    

2022

    

2021

    

2022

    

2021

    

Statement of Income Data:

 

  

 

  

 

  

 

  

 

Time charter revenues

$

36,941

$

34,696

$

72,251

$

69,472

Total revenues

 

36,941

 

34,696

 

72,251

 

69,472

Vessel operating expenses

 

(7,551)

 

(6,114)

 

(13,757)

 

(12,286)

Administrative expenses

 

(6,489)

 

(2,779)

 

(10,630)

 

(5,514)

Depreciation and amortization

 

(5,134)

 

(5,012)

 

(10,245)

 

(10,223)

Total operating expenses

 

(19,174)

 

(13,905)

 

(34,632)

 

(28,023)

Equity in earnings (losses) of joint ventures

 

4,520

 

3,267

 

13,154

 

14,341

Operating income (loss)

 

22,287

 

24,058

 

50,773

 

55,790

Interest income

 

189

 

98

 

389

 

231

Interest expense

 

(5,309)

 

(9,635)

 

(10,505)

 

(15,293)

Other items, net

 

(693)

 

(658)

 

(1,204)

 

(1,311)

Income (loss) before tax

 

16,474

 

13,863

 

39,453

 

39,417

Income tax expense

 

(3,416)

 

(11,225)

 

(6,234)

 

(12,939)

Net income (loss)

$

13,058

$

2,638

$

33,219

$

26,478

Preferred unitholders' interest in net income

 

3,877

 

3,877

 

7,754

 

7,754

Limited partners' interest in net income (loss)

$

9,181

$

(1,239)

$

25,465

$

18,724

Earnings per unit

Common unit public (basic and diluted)

$

0.28

$

(0.04)

$

0.76

$

0.55

Common unit Hoegh LNG (basic and diluted)

$

0.28

$

(0.04)

$

0.76

$

0.58

Cash Flow Data:

Net cash provided by (used in) operating activities

$

20,901

$

21,066

$

32,201

$

37,218

Net cash provided by (used in) investing activities

(1,174)

(2,335)

Net cash provided by (used in) financing activities

$

(15,988)

$

(24,121)

$

(31,853)

$

(45,106)

Other Financial Data:

Segment EBITDA (1)

$

31,030

$

34,284

$

64,385

$

68,741

(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

Six months ended June 30, 2022 Compared with the Six months ended June 30, 2021

Time Charter Revenues. The following table sets forth details of our time charter revenues for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Time charter revenues

$

72,251

$

69,472

$

2,779

Time charter revenues for the six months ended June 30, 2022 were $72.3 million, an increase of $2.8 million from $69.5 million for the six months ended June 30, 2021. The increase was due to higher time charter revenue for the Höegh Gallant, the PGN FSRU Lampung and for the Höegh Grace for the six months ended June 30, 2022. Time charter revenues for the Höegh Gallant increased by $1.3 million which mainly relates to revenues covering vessel operating expenses. Time charter revenues for the PGN FSRU Lampung and the Höegh Grace increased by $0.7 million and $0.8 million, respectively. The increase relates mainly to certain taxes reimbursed for both the PGN FSRU Lampung and the Höegh Grace.

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 March 20, 2022, the Höegh Gallant commenced FSRU operations under agreements with subsidiaries of New Fortress Energy Inc. (“New Fortress”) to charter the Höegh Gallant for a period of ten years (the “NFE Charter”). The charter rate under the NFE Charter is lower than under the prior charter for the Höegh Gallant (the “Suspended Gallant Charter”). The Partnership has entered into an agreement to suspend the Suspended Gallant Charter, with effect from the commencement of the NFE Charter, and a make-whole agreement (together, the “Suspension and Make-Whole Agreements”), pursuant to which Höegh LNG’s subsidiary will compensate the Partnership monthly for the difference between the charter rate earned under the NFE Charter and the charter rate earned under the Suspended Gallant Charter, with an addition of a modest increase until July 31, 2025, the original expiration date of the Suspended Gallant Charter.

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Vessel operating expenses

$

(13,757)

$

(12,286)

$

(1,471)

Vessel operating expenses for the six months ended June 30, 2022 were $13.8 million, an increase of $1.5 million from $12.3 million for the six months ended June 30, 2021. The increase was mainly due to higher operating expenses for the Höegh Gallant which were partly offset by lower operating expenses for the PGN FSRU Lampung and the Höegh Grace for the six months ended June 30, 2022 compared with the corresponding period of 2021.

Administrative Expenses. The following table sets forth details of our administrative expenses for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Administrative expenses

$

(10,630)

$

(5,514)

$

(5,116)

Administrative expenses for the six months ended June 30, 2022 were $10.6 million, an increase of $5.1 million from $5.5 million for the six months ended June 30, 2021. The increase reflects higher administrative expenses for the PGN FSRU Lampung and higher partnership expenses for the six months ended June 30, 2022 compared with the corresponding period of 2021. Higher partnership

5

administrative expenses is mainly related to additional cost from consultancy fees and audit fees and higher fees from financial advisors and legal expenses incurred in relation to the merger agreement with Höegh LNG announced on May 25, 2022.

Depreciation and Amortization. The following table sets forth details of our depreciation and amortization for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Depreciation and amortization

$

(10,245)

$

(10,223)

$

(22)

Depreciation and amortization were $10.2 million for the six months ended June 30, 2022 and 2021.

Total Operating Expenses. The following table sets forth details of our total operating expenses for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Total operating expenses

$

(34,632)

$

(28,023)

$

(6,609)

Total operating expenses were $34.6 million for the six months ended June 30, 2022, an increase of $6.6 million from $28.0 million for the six months ended June 30, 2021. The increase is principally a result of the higher vessel operating expenses and administrative expenses for the six months ended June 30, 2022 compared with the corresponding period in 2021.

Equity in Earnings (Losses) of Joint Ventures. The following table sets forth details of our equity in earnings (losses) of joint ventures for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Equity in earnings (losses) of joint ventures

$

13,154

$

14,341

$

(1,187)

Equity in earnings of joint ventures for the six months ended June 30, 2022 was $13.2 million, a decrease of $1.2 million from equity in earnings of joint ventures of $14.3 million for the six months ended June 30, 2021. Unrealized gains on derivative instruments in our joint ventures impacted the equity in earnings of joint ventures for the six months ended June 30, 2022 and 2021. However, hedge accounting has been implemented as of the refinancing of the loan facilities for both joint ventures on November 30, 2021 and June 1, 2022. Going forward, we expect less fluctuations in gains (losses) related to the derivative instruments due to hedge accounting for the joint ventures.

Excluding the unrealized gains on derivative instruments for the six months ended June 30, 2022 and the six months ended June 30, 2021, the equity in earnings of joint ventures would have been $7.4 million for the six months ended June 30, 2022, compared to $6.6 million for the six months ended June 30, 2021.

Our share of our joint ventures’ operating income was $11.5 million for the six months ended June 30, 2022, compared to $12.1 million for the six months ended June 30, 2021.

Our share of unrealized gain on derivative instruments was $5.7 million for the six months ended June 30, 2022, a decrease of $2.0 million from an unrealized gain of $7.7 million for the six months ended June 30, 2021.

Our share of other financial expense, net, principally consisting of interest income and interest expense, was $4.1 million for the six months ended June 30, 2022 compared with $5.5 million for the six months ended June 30, 2021. For the six months ended June 30, 2022, there was lower interest expense due to refinancing and repayment of principal on debt between the two periods.

6

Operating Income (Loss). The following table sets forth details of our operating income for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Operating income (loss)

$

50,773

$

55,790

$

(5,017)

Operating income for the six months ended June 30, 2022 was $50.8 million, a decrease of $5.0 million from operating income of $55.8 million for the six months ended June 30, 2021. Excluding the impact of the unrealized gains on derivatives impacting the equity in earnings of joint ventures for the six months ended June 30, 2022 and 2021, operating income for the six months ended June 30, 2022 would have been $45.1 million, a decrease of $3.0 million from $48.1 million for the six months ended June 30, 2021. Excluding the impact of the unrealized gains on derivatives, the decrease for the six months ended June 30, 2022 is primarily due to higher vessel operating expenses and administrative expenses partially offset by higher time charter revenues for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Interest Income. The following table sets forth details of our interest income for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Interest income

$

389

$

231

$

158

Interest income for the six months ended June 30, 2022 was $0.4 million, an increase of $0.2 million from interest income of $0.2 million for the six months ended June 30, 2021. Interest income is mainly related to interest on cash balances and accrued interest on the advances to our joint ventures for the six months ended June 30, 2022 and 2021. The interest rate under the joint venture shareholder loans is a fixed rate of 8.0% per year.

Interest Expense. The following table sets forth details of our interest expense for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Interest expense

$

(9,295)

$

(10,079)

$

784

Amortization and gain (loss) on cash flow hedge

 

(222)

 

(102)

 

(120)

Commitment fees

 

 

(470)

 

470

Amortization of debt issuance cost

 

(988)

 

(4,642)

 

3,654

Total interest expense

$

(10,505)

$

(15,293)

$

4,788

Total interest expense was $10.5 million for the six months ended June 30, 2022, a decrease of $4.8 million from $15.3 million for the six months ended June 30, 2021. Interest expense consists of the interest incurred, amortization and gain (loss) on cash flow hedge, commitment fees and amortization of debt issuance cost for the period.

The interest incurred of $9.3 million for the six months ended June 30, 2022, decreased by $0.8 million compared to $10.1 million for the six months ended June 30, 2021. The decrease was principally due to repayment of outstanding loan balances for the loan facilities related to the PGN FSRU Lampung (the “Lampung facility”) and the commercial and export credit tranches of the $385 million facility financing the Höegh Gallant, the Höegh Grace and the Partnership's liquidity needs (the “$385 million facility”).

Amortization and gain (loss) on cash flow hedge was a loss of $0.2 million and $0.1 million for the six months ended June 30, 2022 and 2021 respectively. For the six months ended June 30, 2022 and 2021, the loss solely related to amortization of amounts excluded from hedge effectiveness for discontinued hedges and the initial fair values of interest rate swaps.

No commitment fees were incurred for the six months ended June 30, 2022. For the six months ended June 30, 2021, $0.4 million of commitment fees were incurred in relation to a new Lampung facility, which was not executed.

7

Amortization of debt issuance cost for the six months ended June 30, 2022 was $1.0 million, a decrease of $3.6 million from $4.6 million for the six months ended June 30, 2021. The decrease in amortization of debt issuance cost relates to expensing of all the debt issuance costs in the six months ended June 30, 2021 related to a new Lampung facility which was not executed.

Other Items, Net. The following table sets forth details of our other items, net for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Foreign exchange gain (loss)

$

(53)

$

(23)

$

(30)

Bank charges, fees and other

 

(105)

 

(108)

 

3

Withholding tax on interest expense and other

 

(1,046)

 

(1,180)

 

134

Total other items, net

$

(1,204)

$

(1,311)

$

107

Other items, net were $1.2 million for the six months ended June 30, 2022 and $1.3 million for the six months ended June 30, 2021.

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Income (loss) before tax

$

39,453

$

39,417

$

36

Income before tax was $39.5 million for the six months ended June 30, 2022 and $39.4 million for the six months ended June 30, 2021. The income before tax for both periods was impacted by the unrealized gains (losses) on derivative instruments mainly on our share of equity in earnings of joint ventures. Excluding all the unrealized gains (losses) on derivative instruments, income before tax for the six months ended June 30, 2022 would have been $33.7 million, an increase of $2.0 million from $31.7 million for the six months ended June 30, 2021. Excluding the unrealized gains (losses) on derivative instruments, the increase is primarily due to higher time charter revenues and lower interest expenses partially offset by higher operating expenses and administrative expenses.

Income Tax Expense. The following table sets forth details of our income tax expense for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Income tax expense

$

(6,234)

$

(12,939)

$

6,705

Income tax expense for the six months ended June 30, 2022 was $6.2 million, a decrease of $6.7 million compared to $12.9 million for the six months ended June 30, 2021.The main reason for the decrease in income taxes for the six months ended June 30, 2022, was an additional tax expense in 2021 in current taxes and an increase in uncertain tax position due to the completion of a tax audit related to 2019 in Indonesia.

In late June 2021, the tax audit for PGN FSRU Lampungs 2019 tax return was completed. The main finding was that the internal promissory note for tax purposes was characterized as equity instead of debt such that 100% of the accrued interest was disallowed for tax deduction. The Indonesian subsidiary has filed an Objection Request with the Central Jakarta Regional Tax Office. The Partnership and its Indonesian subsidiary disagree with the conclusion. Nevertheless, the Partnership and its Indonesian subsidiary may not be successful in the appeal and the Indonesian subsidiary recorded an increase in the uncertain tax position, of $8.4 million for the potential future obligation to the tax authorities for a disallowed interest deduction, as well as expensed the additional tax for 2019 including penalties of $2.7 million as of June 30, 2021.

Benefits of uncertain tax positions are recognized when it is more-likely-than-not that a tax position taken in a tax return will be sustained upon examination based on the technical merits of the position. For the six months ended June 30, 2022 there was an increase in uncertain tax positions of $1.1 million compared to an increase of $8.4 million for the six months ended June 30, 2021. As of June 30, 2022, and December 31, 2021, the unrecognized tax benefits were $10.1 million and $9.0 million, respectively.

8

Income tax expense for the six months ended June 30, 2022, included an additional one-off tax expense of $0.8 million due to change in tax status from a tonnage tax regime to normal corporate income tax regime in Cyprus for the Höegh Gallant when the vessel started operating as an FSRU.

Net Income (Loss). The following table sets forth details of our net income for the six months ended June 30, 2022 and 2021:

Positive

 

Six months ended June 30, 

(negative)

 

(in thousands of U.S. dollars)

2022

2021

variance

 

Net income (loss)

    

$

33,219

    

$

26,478

    

$

6,741

Preferred unitholders' interest in net income

 

7,754

 

7,754

 

Limited partners' interest in net income (loss)

$

25,465

$

18,724

$

6,741

As a result of the foregoing, net income for the six months ended June 30, 2022 was $33.2 million, an increase of $6.7 million from net income of $26.5 million for the six months ended June 30, 2021. Net income of $7.8 million was attributable to the holders of the Series A preferred units for the six months ended June 30, 2022 and 2021. Our limited partners’ interest in net income for the six months ended June 30, 2022 was $25.5 million, an increase of $6.7 million from limited partners’ interest in net income of $18.7 million for the six months ended June 30, 2021.

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 six months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022 and 2021, 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.

9

Majority Held FSRUs. The following table sets forth details of segment results for the Majority Held FSRUs for the six months ended June 30, 2022 and 2021:

Six months ended

Positive

 

Majority Held FSRUs

June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Time charter revenues

$

72,251

$

69,472

$

2,779

Vessel operating expenses

 

(13,758)

 

(12,286)

 

(1,472)

Administrative expenses

 

(2,668)

 

(1,971)

 

(697)

Segment EBITDA

 

55,825

 

55,215

 

610

Depreciation and amortization

 

(10,245)

 

(10,223)

 

(22)

Operating income (loss)

 

45,580

 

44,992

 

588

Other financial income (expense), net

 

(3,700)

 

(8,204)

 

4,504

Income (loss) before tax

 

41,880

 

36,788

 

5,092

Income tax expense

 

(6,234)

 

(12,939)

 

6,705

Net income (loss)

$

35,646

$

23,849

$

11,797

Time charter revenues for the six months ended June 30, 2022 were $72.3 million compared to $69.5 million for the six months ended June 30, 2021. As discussed above, the increase was mainly due to higher time charter revenue for the Höegh Gallant for revenues covering vessel operating expenses as well as higher time charter revenues for the PGN FSRU Lampung and the Höegh Grace for certain taxes being reimbursed.

Vessel operating expenses for the six months ended June 30, 2022 were $13.8 million, an increase of $1.5 million from $12.3 million for the six months ended June 30, 2021. The increase reflects higher operating expenses, mainly for the Höegh Gallant, while operating expenses are lower for the PGN FSRU Lampung and the Höegh Grace, for the six months ended June 30, 2022 compared with the corresponding period of 2021.

Administrative expenses for the six months ended June 30, 2022 were $2.7 million, an increase of $0.7 million from $2.0 million for the six months ended June 30, 2021 reflects higher administrative expenses, mainly for the PGN FSRU Lampung, for the six months ended June 30, 2022 compared with the corresponding period of 2021.

Segment EBITDA for the six months ended June 30, 2022 was $55.8 million, an increase of $0.6 million from $55.2 million for the six months ended June 30, 2021.

Joint Venture FSRUs. The following table sets forth details of segment results for the Joint Venture FSRUs for the six months ended June 30, 2022 and 2021:

Six months ended

Positive

 

Joint Venture FSRUs

June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Time charter revenues

$

21,711

$

20,744

$

967

Vessel operating expenses

 

(4,833)

 

(3,353)

 

(1,480)

Administrative expenses

 

(357)

 

(322)

 

(35)

Segment EBITDA

 

16,521

 

17,069

 

(548)

Depreciation and amortization

 

(4,979)

 

(4,980)

 

1

Operating income (loss)

 

11,542

 

12,089

 

(547)

Gain (loss) on derivative instruments

 

5,717

 

7,707

 

(1,990)

Other financial income (expense), net

 

(4,105)

 

(5,455)

 

1,350

Income (loss) before tax

 

13,154

 

14,341

 

(1,187)

Income tax expense

 

 

 

Net income (loss)

$

13,154

$

14,341

$

(1,187)

Total time charter revenues for the six months ended June 30, 2022 were $21.7 million, an increase of $1.0 million compared to $20.7 million for the six months ended June 30, 2021. Higher time charter revenues for the six months ended June 30, 2022 reflect higher reimbursement of costs incurred for maintenance and projects of the charterer.

10

Vessel operating expenses were $4.8 million for the six months ended June 30, 2022, compared to $3.4 million for the six months ended June 30, 2021. The increase in vessel operating expenses was mainly due to higher maintenance expenses for the Neptune for the six months ended June 30, 2022.

Administrative expenses for the six months ended June 30, 2022 were $0.4 million compared with $0.3 million for the six months ended June 30, 2021.

Segment EBITDA was $16.5 million for the six months ended June 30, 2022 compared with $17.1 million for the six months ended June 30, 2021.

Other. The following table sets forth details of other results for the six months ended June 30, 2022 and 2021:

Six months ended

Positive

 

Other

June 30, 

(negative)

 

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

 

Administrative expenses

$

(7,961)

$

(3,543)

$

(4,418)

Segment EBITDA

 

(7,961)

 

(3,543)

 

(4,418)

Operating income (loss)

 

(7,961)

 

(3,543)

 

(4,418)

Other financial income (expense), net

 

(7,620)

 

(8,169)

 

549

Income (loss) before tax

 

(15,581)

 

(11,712)

 

(3,869)

Income tax benefit (expense)

 

 

 

Net income (loss)

$

(15,581)

$

(11,712)

$

(3,869)

Administrative expenses and Segment EBITDA for the six months ended June 30, 2022 were $8.0 million, an increase of $4.4 million compared to $3.5 million for the six months ended June 30, 2021. The increase is mainly related to additional cost from consultancy fees and audit fees and higher fees from financial advisors and legal expenses incurred in relation to the merger agreement with Höegh LNG announced on May 25, 2022.

Other financial income (expense), net, which is not part of the segment measure of profits, is related to the interest income accrued on the advances to our joint ventures and interest expense related to the $85 million revolving credit facility from Höegh LNG. In addition, 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 $7.6 million for the six months ended June 30, 2022, a decrease of $0.6 million from an expense of $8.2 million for the six months ended June 30, 2021. The decrease was principally due to lower interest expense on the $385 million facility for the six months ended June 30, 2022 compared with 2021 due to repayments made on the facility.

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Time Charter Revenues. The following table sets forth details of our time charter revenues for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Time charter revenues

$

36,941

$

34,696

$

2,245

Time charter revenues for the three months ended June 30, 2022 were $36.9 million, an increase of $2.2 million from $34.7 million for the three months ended June 30, 2021. The increase was due to higher time charter revenue for the Höegh Gallant, the PGN FSRU Lampung and the Höegh Grace for the three months ended June 30, 2022 compared with the three months ended June 30, 2021. The increase for the Höegh Gallant relates mainly to revenues covering vessel operating expenses, while the increase for the PGN FSRU Lampung and the Höegh Grace relates mainly to certain taxes reimbursed for both the PGN FSRU Lampung and the Höegh Grace.

11

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Vessel operating expenses

$

(7,551)

$

(6,114)

$

(1,437)

Vessel operating expenses for the three months ended June 30, 2022 were $7.6 million, an increase of $1.5 million from $6.1 million for the three months ended June 30, 2021. The increase was mainly due to higher operating expenses for the Höegh Gallant which were partly offset by lower operating expenses for the Höegh Grace for the three months ended June 30, 2022 compared with the three months ended June 30, 2021.

Administrative Expenses. The following table sets forth details of our administrative expenses for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Administrative expenses

$

(6,489)

$

(2,779)

$

(3,710)

Administrative expenses for the three months ended June 30, 2022 were $6.5 million, an increase of $3.7 million from $2.8 million for the three months ended June 30, 2021. The increase reflects higher administrative expenses for the PGN FSRU Lampung and higher partnership expenses for the three months ended June 30, 2022 compared with the three months ended June 30, 2021. Higher partnership administrative expenses is related to expenses incurred in relation to the merger agreement with Höegh LNG announced on May 25, 2022.

Depreciation and Amortization. The following table sets forth details of our depreciation and amortization for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Depreciation and amortization

$

(5,134)

$

(5,012)

$

(122)

Depreciation and amortization for the three months ended June 30, 2022 were $5.1 million, an increase of $0.1 million from $5.0 million for the three months ended June 30, 2021.

Total Operating Expenses. The following table sets forth details of our total operating expenses for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Total operating expenses

$

(19,174)

$

(13,905)

$

(5,269)

Total operating expenses were $19.2 million for the three months ended June 30, 2022, an increase of $5.3 million from $13.9 million for the three months ended June 30, 2021. The increase is primarily a result of the higher vessel operating expenses and administrative expenses for the three months ended June 30, 2022 compared with the three months ended June 30, 2021.

Equity in Earnings (Losses) of Joint Ventures. The following table sets forth details of our equity in earnings (losses) of joint ventures for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Equity in earnings (losses) of joint ventures

$

4,520

$

3,267

$

1,253

12

Equity in earnings of joint ventures for the three months ended June 30, 2022 was $4.5 million, an increase of $1.3 million from equity in earnings of joint ventures of $3.3 million for the three months ended June 30, 2021. Unrealized gains on derivative instruments in our joint ventures impacted the equity in earnings of joint ventures for the three months ended June 30, 2022 and 2021.

Excluding the unrealized gains on derivative instruments for the three months ended June 30, 2022 and 2021, the equity in earnings of joint ventures would have been $3.7 million for the three months ended June 30, 2022, an increase of $0.5 million from $3.2 million for the three months ended June 30, 2021.

Our share of our joint ventures’ operating income was $5.6 million for the three months ended June 30, 2022 and was $6.0 million the three months ended June 30, 2021.

Our share of unrealized gain on derivative instruments was $0.8 million for the three months ended June 30, 2022, compared to $34,000 for the three months ended June 30, 2021.

Our share of other financial expense, net, principally consisting of interest income and interest expense, was $2.0 million for the three months ended June 30, 2022 compared with $2.8 million for the three months ended June 30, 2021. For the three months ended June 30, 2022 there was lower interest expense due to refinancing and repayment of principal on debt between the two periods.

Operating Income (Loss). The following table sets forth details of our operating income for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Operating income (loss)

$

22,287

$

24,058

$

(1,771)

Operating income for the three months ended June 30, 2022 was $22.3 million, a decrease of of $1.8 million from operating income of $24.1 million for the three months ended June 30, 2021. Excluding the impact of the unrealized gains on derivatives impacting the equity in earnings of joint ventures for the three months ended June 30, 2022 and 2021, operating income for the three months ended June 30, 2022 would have been $21.5 million, a decrease of $2.5 million from $24.0 million for the three months ended June 30, 2021. Excluding the impact of the unrealized gains on derivatives, the decrease for the three months ended June 30, 2022 is primarily due to higher operating expenses and administrative expenses partially offset by higher time charter revenues.

Interest Income. The following table sets forth details of our interest income for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Interest income

$

189

$

98

$

91

Interest income for the three months ended June 30, 2022 was $0.2 million, an increase of $0.1 million from interest income of $0.1 million for the three months ended June 30, 2021. Interest income is mainly related to interest on cash balances and accrued interest on the advances to our joint ventures for the three months ended June 30, 2022 and 2021.

Interest Expense. The following table sets forth details of our interest expense for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Interest expense

$

(4,701)

$

(5,023)

$

322

Amortization and gain (loss) on cash flow hedge

 

(121)

(57)

 

(64)

Commitment fees

 

(436)

 

436

Amortization of debt issuance cost

 

(487)

(4,119)

 

3,632

Total interest expense

$

(5,309)

$

(9,635)

$

4,326

13

Total interest expense was $5.3 million for the three months ended June 30, 2022, a decrease of $4.3 million from $9.6 million for the three months ended June 30, 2021. Interest expense consists of the interest incurred, amortization and gain (loss) on cash flow hedge, commitment fees and amortization of debt issuance cost for the period.

The interest incurred of $4.7 million for the three months ended June 30, 2022, decreased by $0.3 million compared to $5.0 million for the three months ended June 30, 2021. The decrease was principally due to repayment of outstanding loan balances for the Lampung facility and the commercial and export credit tranches of the $385 million facility.

Amortization and gain (loss) on cash flow hedge was a loss of $0.1 million for the three months ended June 30, 2022 and June 30, 2021 and solely related to amortization of the amounts excluded from hedge effectiveness for discontinued hedges and the initial fair values of interest rate swaps.

No commitment fees were incurred for the three months ended June 30, 2022. In the same period in 2021, commitment fees of $0.4 million were incurred in relation to a new Lampung facility which was not executed.

Amortization of debt issuance cost for the three months ended June 30, 2022 was $0.5 million compared to $4.1 million for the three months ended June 30, 2021. During the second quarter of 2021, debt issuance costs for a new Lampung facility which was not executed were fully expensed.

Other Items, Net. The following table sets forth details of our other items, net for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Foreign exchange gain (loss)

$

(25)

$

(3)

$

(22)

Bank charges, fees and other

 

(66)

 

(54)

 

(12)

Withholding tax on interest expense and other

 

(602)

 

(601)

 

(1)

Total other items, net

$

(693)

$

(658)

$

(35)

Other items, net were $0.7 million for the three months ended June 30, 2022 and 2021.

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Income (loss) before tax

$

16,474

$

13,863

$

2,611

Income before tax for the three months ended June 30, 2022 was $16.5 million, an increase of $2.6 million from $13.9 million for the three months ended June 30, 2021. The income before tax for both periods was impacted by the unrealized gains (losses) on derivative instruments mainly on our share of equity in earnings of joint ventures. Excluding all the unrealized gains (losses) on derivative instruments, income before tax for the three months ended June 30, 2022 would have been $15.8 million, an increase of $1.9 million from $13.9 million for the three months June 30, 2021. Excluding the unrealized gains (losses) on derivative instruments, the increase for the three months ended June 30, 2022 compared to 2021 is primarily due to higher time charter revenues and lower interest expenses partially offset by higher operating expenses and administrative expenses.

Income Tax Expense. The following table sets forth details of our income tax expense for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Income tax expense

$

(3,416)

$

(11,225)

$

7,809

Income tax expense for the three months ended June 30, 2022 was $3.4 million, a decrease of $7.8 million compared to $11.2 million for the three months ended June 30, 2021.

14

In late June 2021, the tax audit for PGN FSRU Lampungs 2019 tax return was completed. The main finding was that the internal promissory note for tax purposes was charatcterized as equity instead of debt such that 100% of the accrued interest was disallowed for tax deduction. The Indonesian subsidiary has filed an Objection Request with the Central Jakarta Regional Tax Office. The Partnership and its Indonesian subsidiary disagree with the conclusion. Nevertheless, the Partnership and its Indonesian subsidiary may not be successful in the appeal, and the additional tax for 2019 was expensed and a provision for potential tax was also recorded as of June 30, 2021.

Benefits of uncertain tax positions are recognized when it is more-likely-than-not that a tax position taken in a tax return will be sustained upon examination based on the technical merits of the position. For the three months ended June 30, 2022 and 2021, there were increases in uncertain tax positions of $0.5 million and $7.9 million, respectively.

Income tax expense for the three months ended June 30, 2022, included an additional one-off tax expense of $0.8 million due to change in tax status from a tonnage tax regime to normal corporate income tax regime in Cyprus for the Höegh Gallant when the vessel started operating as an FSRU.

Net Income (Loss). The following table sets forth details of our net income for the three months ended June 30, 2022 and 2021:

Positive

Three months ended June 30, 

(negative)

(in thousands of U.S. dollars)

2022

2021

variance

Net income (loss)

    

$

13,058

    

$

2,638

    

$

10,420

Preferred unitholders' interest in net income

 

3,877

 

3,877

 

Limited partners' interest in net income (loss)

$

9,181

$

(1,239)

$

10,420

As a result of the foregoing, net income for the three months ended June 30, 2022 was $13.1 million, an increase of $10.4 million from net income of $2.6 million for the three months ended June 30, 2021. Net income of $3.9 million was attributable to the holders of the Series A preferred units for the three months ended June 30, 2022 and 2021. Our limited partners’ interest in net income for the three months ended June 30, 2022 was $9.2 million, an increase of $10.4 million from limited partner’s interest in net loss of $1.2 million for the three months ended June 30, 2021.

Segments

Majority Held FSRUs. The following table sets forth details of segment results for the Majority Held FSRUs for the three months ended June 30, 2022 and 2021:

Three months ended

Positive

Majority Held FSRUs

June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Time charter revenues

$

36,941

$

34,696

$

2,245

Vessel operating expenses

 

(7,551)

 

(6,114)

 

(1,437)

Administrative expenses

 

(1,692)

 

(1,158)

 

(534)

Segment EBITDA

 

27,698

 

27,424

 

274

Depreciation and amortization

 

(5,134)

 

(5,012)

 

(122)

Operating income (loss)

 

22,564

 

22,412

 

152

Other financial income (expense), net

 

(1,976)

 

(6,090)

 

4,114

Income (loss) before tax

 

20,588

 

16,322

 

4,266

Income tax expense

 

(3,416)

 

(11,225)

 

7,809

Net income (loss)

$

17,172

$

5,097

$

12,075

Time charter revenues for the three months ended June 30, 2022 were $36.9 million compared to $34.7 million for the three months ended June 30, 2021. As discussed above, the increase was mainly due to higher time charter revenue for the Höegh Gallant, the PGN FSRU Lampung and the Höegh Grace for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 and reflects higher reimbursement for operating expenses as well as certain taxes of the charterers compared with the three months ended June 30, 2021.

15

Vessel operating expenses for the three months ended June 30, 2022 were $7.6 million, an increase of $1.5 million from $6.1 million for the three months ended June 30, 2021. As discussed above, the increase was mainly due to higher operating expenses for the Höegh Gallant which were offset by lower operating expenses for the Höegh Grace.

Administrative expenses for June 30, 2022 were $1.7 million compared to $1.2 million for June 30, 2021. As discussed above, the increase was mainly due to higher administrative expenses for the PGN FSRU Lampung.

Segment EBITDA for the three months ended June 30, 2022 was $27.7 million, an increase of $0.3 million from $27.4 million for the three months ended June 30, 2021.

Joint Venture FSRUs. The following table sets forth details of segment results for the Joint Venture FSRUs for the three months ended June 30, 2022 and 2021:

Three months ended

Positive

Joint Venture FSRUs

June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Time charter revenues

$

11,077

$

10,285

$

792

Vessel operating expenses

 

(2,759)

 

(1,636)

 

(1,123)

Administrative expenses

 

(189)

 

(168)

 

(21)

Segment EBITDA

 

8,129

 

8,481

 

(352)

Depreciation and amortization

 

(2,489)

 

(2,489)

 

Operating income (loss)

 

5,640

 

5,992

 

(352)

Gain (loss) on derivative instruments

 

837

 

34

 

803

Other financial income (expense), net

 

(1,957)

 

(2,759)

 

802

Income (loss) before tax

 

4,520

 

3,267

 

1,253

Income tax expense

 

 

 

Net income (loss)

$

4,520

$

3,267

$

1,253

Total time charter revenues for the three months ended June 30, 2022 were $11.1 million, an increase of $0.8 million compared to $10.3 million for the three months ended June 30, 2021. The increase in time charter revenues for the three months ended June 30, 2022 reflects higher reimbursement of costs incurred for maintenance and projects of the charterer compared with the three months ended June 30, 2021.

Vessel operating expenses were $2.8 million for the three months ended June 30, 2022 and $1.6 million for the three months ended June 30, 2021. The increase in vessel operating expenses was mainly due to higher maintenance expenses for the Neptune for the three months ended June 30, 2022.

Administrative expenses were $0.2 million for the three months ended June 30, 2022 and 2021.

Segment EBITDA was $8.1 million for the three months ended June 30, 2022 and $8.5 million for the three months ended June 30, 2021.

Other. The following table sets forth details of other results for the three months ended June 30, 2022 and 2021:

Three months ended

Positive

Other

June 30, 

(negative)

(in thousands of U.S. dollars)

    

2022

    

2021

    

variance

Administrative expenses

$

(4,797)

$

(1,621)

$

(3,176)

Segment EBITDA

 

(4,797)

 

(1,621)

 

(3,176)

Operating income (loss)

 

(4,797)

 

(1,621)

 

(3,176)

Other financial income (expense), net

 

(3,837)

 

(4,105)

 

268

Income (loss) before tax

 

(8,634)

 

(5,726)

 

(2,908)

Income tax benefit (expense)

 

 

 

Net income (loss)

$

(8,634)

$

(5,726)

$

(2,908)

16

Administrative expenses and Segment EBITDA for the three months ended June 30, 2022 were $4.8 million, an increase of $3.2 million from $1.6 million for the three months ended June 30, 2021. The increase reflects higher partnership expenses for the three months ended June 30, 2022 compared to the same period in 2021 mainly due to financial advisory fees and legal expenses incurred in relation to the merger agreement with Höegh LNG announced on May 25, 2022.

Other financial income (expense), net, which is not part of the segment measure of profits, is related to the interest income accrued on the advances to our joint ventures and interest expense related to the $85 million revolving credit facility from Höegh LNG. In addition, 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 $3.8 million for the three months ended June 30, 2022, a decrease of $0.3 million from an expense of $4.1 million for the three months ended June 30, 2021.

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.

On July 27, 2021, our board of directors announced a reduction in the quarterly cash distribution on our common units to $0.01 per common unit, down from a distribution of $0.44 per common unit in the first quarter of 2021, commencing with the distribution for the second quarter of 2021 and continuing in the third and fourth quarters of 2021 as well as in the first and second quarters of 2022. We expect to use our internally generated cash flow to reduce debt levels and strengthen our balance sheet.

Our sources of liquidity and potential sources of liquidity include cash balances, cash flows from our operations, interest payments from our advances to our joint ventures and our undrawn balance of $60.5 million under the $85 million revolving credit facility from Höegh LNG. However, we have received notice from Höegh LNG that it will not extend the $85 million revolving credit facility when it matures on January 1, 2023, and that it will have very limited capacity to extend any additional advances to us thereunder beyond what is currently drawn under such facility. Further drawdowns on the $85 million revolving credit facility may be subject to Höegh LNG’s consent because of the arbitration notice received from the charterer of PGN FSRU Lampung, as described below.

Cash and cash equivalents are denominated primarily in U.S. dollars. We do not currently use derivative instruments for purposes other 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 New 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. 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. As of June 30, 2022, the historical debt service coverage ratio had not been met by SRV Joint Gas Ltd, whereas SRV Joint Gas Two Ltd met neither of the historical nor the projected debt service coverage ratios. As a result, no payments on the shareholder loans or other distributions can be made by the joint ventures. Dividends from Höegh Lampung may only be paid out of profits under Singapore law. Dividends from PT Höegh may only be paid if its retained earnings are positive under Indonesian law and requirements are fulfilled under the Lampung facility. In addition, PT Höegh, as an Indonesian incorporated company, is required to establish a statutory reserve equal to 20% of its paid-up capital. The dividend can only be distributed if PT Höegh’s retained earnings are positive after deducting the statutory reserve. As of June 30, 2022, 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, 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 distributions and the guarantor not being in breach of the financial covenants applicable

17

to it. Further, until the pending arbitration with the charterer of PGN FSRU Lampung has been terminated, cancelled or favorably resolved, no shareholder loans may be serviced and no dividends may be paid to the Partnership by the subsidiary borrowing under the Lampung facility, PT Höegh. Furthermore, each quarter, 50% of the PGN FSRU Lampung’s generated cash flow after debt service must be applied to a pre-pay outstanding loan amounts under the refinanced Lampung facility, applied pro rata across the commercial and export credit tranches. The remaining 50% will be retained by PT Höegh and pledged in favor of the lenders until the pending arbitration with the charterer of PGN FSRU Lampung has been terminated, cancelled or favorably resolved. As a result, no cash flow from the PGN FSRU Lampung will be available for the Partnership until the pending arbitration has been terminated, cancelled or favorably resolved. This limitation does not prohibit the Partnership from paying distributions to preferred and common unitholders. 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 15 to the audited consolidated financial statements contained in our 2021 Form 20-F as well as note 9 to the unaudited condensed interim consolidated financial statements contained herein and “New Cape Ann Facility” below.

As of June 30, 2022, the Partnership has no material commitments for capital expenditures for its current business. However, during the fourth quarter of 2021, the Höegh Gallant was modified and prepared for performance under the NFE Charter, and incurred expenditures of $4.9 million during the quarter, of which $3.5 million has been recorded as operating expenses and $1.4 million has been capitalized under Vessel, net of accumulated depreciation on the consolidated balance sheet. Pursuant to the Suspension and Make-Whole-Agreements, the Partnership received at the end of February 2022 indemnification payments for 50% of the amount of expenditures incurred in the fourth quarter of 2021. The payments have been recorded as contributions to equity. Additional modification expenditures for the Höegh Gallant of $1.1 million were incurred during first and second quarter of 2022 of which all has been expensed and recorded as operating expenses as of June 30, 2022. Pursuant to the Suspension and Make-Whole-Agreements, the Partnership expects to receive indemnification payments for 50% of the amount of expenditures incurred in the first and second quarter of 2022 during the second half of 2022.

As of June 30, 2022, SRV Joint Gas Ltd, the owner of the Neptune, has started to prepare for the scheduled drydock on the Neptune, which is expected to be completed during third quarter of 2022. Pursuant to the contract with the charterer the joint venture will be reimbursed for the cost related to the drydock, except for certain modification costs that will be covered by SRV Joint Gas Ltd. SRV Joint Gas Ltd has received approximately $2.4 million from its owners to finance expenditures which are not reimbursable by the charterer, of which the Partnership has paid approximately $1.2 million.

As discussed above, we entered into the Suspended Gallant Charter with Höegh LNG for the Höegh Gallant. On September 23, 2021, we entered into the NFE Charter with subsidiaries of New Fortress to charter Höegh Gallant primarily for FSRU operations for a period of ten years, with FSRU operations commencing on March 20, 2022. We also entered into the Suspension and Make-Whole Agreements with Höegh LNG for the Höegh Gallant, with effect from the commencement of the NFE Charter. The charter rate under the NFE Charter, is lower than under the Suspended Gallant Charter. However, under the Suspension and Make-Whole Agreements, Höegh LNG’s subsidiary will compensate the Partnership monthly for the difference between the charter rate earned under the NFE Charter and the charter rate earned under the Suspended Gallant Charter with the addition of a modest increase until July 31, 2025, the original expiration date of the Suspended Gallant Charter. Afterwards, we will continue to receive the charter rate agreed with New Fortress for the remaining term of the NFE Charter. In addition, pursuant to the Suspension and Make-Whole Agreements certain capital expenditures incurred to ready and relocate the Höegh Gallant for performance under the NFE Charter will be shared 50/50 between Höegh LNG and the Partnership, subject to a maximum obligation of the Partnership. As of August 24, 2022, Höegh LNG has paid an aggregate of $2.6 million to the Partnership pursuant to the Suspension and Make-Whole Agreements related to such capital expenditure.

Höegh LNG’s ability to make payments to us under the Suspension and Make-Whole Agreements 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 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 Suspension and Make-Whole Agreements or meet the funding requests or indemnification obligations, our financial condition, results of operations and ability to make cash distributions to unitholders could be materially adversely affected.

As of June 30, 2022, there were no off-balance sheet arrangements.

18

The outbreak of 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 and counterparty 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. It is therefore possible that charterers may not make payments for time charter invoices in times of reduced demand. As of June 30, 2022, 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 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 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.

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 our time charter contracts, our financial condition, results of operations and ability to make cash distributions to unitholders could be materially adversely affected. In addition, if financial institutions providing our interest rate swaps are unable to meet their obligations, we could experience higher interest expense or be unable to obtain funding.

In February 2022, the Russian attack on Ukraine started. It may lead to further regional and international conflicts or armed action. It is possible that such conflict could disrupt supply chains and cause instability in the global economy. Additionally, the ongoing conflict could result in the imposition of further economic sanctions by the United States and the European Union against Russia. While much uncertainty remains regarding the global impact of the invasion, it is possible that such tensions could adversely affect the Partnership’s business, financial condition, results of operation and cash flows. Furthermore, it is possible that third parties with whom the Partnership has charter contracts may be impacted by events in Russia and Ukraine, which could adversely affect its operations. The invasion has among other things, led to a significantly increased attention to security of energy supply in Europe. Several European countries are looking to reduce their reliance on pipeline gas from Russia, and are planning to increase the import capacity for LNG through the application of FSRUs and/or landbased import facilities in combination with increased use of renewable energy sources in the energy mix. Over time, this could accelerate the energy transition to renewable energy.

As previously reported, by letter dated July 13, 2021, the charterer under the lease and maintenance agreement for the PGN FSRU Lampung (“LOM”) raised certain issues with PT Hoegh LNG Lampung in relation to the operations of the PGN FSRU Lampung and the LOM and by further letter dated July 27, 2021, stated that it would commence arbitration against PT Hoegh LNG Lampung. On August 2, 2021, the charterer served a notice of arbitration (“NOA”) to declare the LOM null and void, and/or to terminate the LOM, and/or seek damages. On June 13, 2022, the charterer filed a statement of claim with a request for a primary relief and three alternative reliefs. The charterer’s claim of restitution if the LOM is declared null and void is $416 million, increasing to $472 million by June 2023 plus interest and costs.

PT Hoegh LNG Lampung has previously served a reply refuting the claims as baseless and without legal merit and has also served a counterclaim against the charterer for multiple breaches of the LOM and a claim against the parent company of the charterer for the fulfilment of the charterer’s obligations under the LOM as stated in a guarantee provided by the parent company, with a claim for damages. On June 13, 2022, PT Hoegh LNG Lampung filed its statement of claim.

PT Hoegh LNG Lampung will take all necessary steps and will vigorously contest the charterer’s claims in the legal process.

No assurance can be given at this time as to the outcome of the dispute with the charterer of the PGN FSRU Lampung. Notwithstanding the NOA, both parties have continued to perform their respective obligations under the LOM. In the event that the outcome of such dispute is unfavorable to us, it could have a material adverse impact on our business, results of operations, financial condition and ability to pay distributions to unitholders.

As discussed in note 17 under “Indonesian property tax” to the audited consolidated financial statements contained in our 2021 Form 20-F as well as note 14 to the unaudited condensed interim consolidated financial statements contained in this Report on Form 6-K, the Partnership’s Indonesian subsidiary was assessed a property tax and penalties of $3.0 million by the Indonesian authorities for the period from 2015 through 2019. The retroactive assessment was due to the issuance of new Indonesian reglations which define an

19

FSRU as a “Building” subject to the existing property tax law. The Partnership’s Indonesian subsidiary has appealed the assessment. The appeal process could take a number of years to conclude. There can be no assurance of the result of the appeal or whether the Indonesian subsidiary will prevail. As a result, the property tax and penalties were expensed as a component of vessel operating expenses for the year ended December 31, 2019. Until the appeal is concluded, the Indonesian subsidiary will be required to pay an annual property tax of approximately $0.5 million.

The Partnership’s Colombian subsidiary received a notification from the Tax Administration of Cartagena assessing a penalty of approximately $1.8 million for failure to file the 2016 to 2018 ICT returns. Refer to note 17 to the audited consolidated financial statements contained in our 2021 Form 20-F as well as note 14 to the unaudited condensed interim consolidated financial statements contained in this Report on Form 6-K for details of management’s assessment.

As previously announced, the loan agreement for the Cape Ann was executed in December 2021 and the transaction was successfully closed on the June 1, 2022, the maturity date of the existing debt facility.

As of June 30, 2022, the total outstanding principal on our long-term debt was $365.7 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 $361.0 million as of June 30, 2022.

We have not made use of derivative instruments for currency risk management purposes. We had interest rate swaps contracts for the Lampung facility (“Lampung interest rate swaps”) and the $385 million facility (“$385 million interest rate swaps”) as of June 30, 2022. As of June 30, 2022, we had outstanding interest rate swap agreements for a total notional amount of $255.9 million to hedge against the floating interest rate risks of our long-term debt under the Lampung facility and the $385 million facility. For additional information, refer to “Qualitative and Quantitative Disclosure About Market Risk” and note 13 to the unaudited condensed interim consolidated financial statements.

As of June 30, 2022, our estimated commitments of interest owed in the twelve months ending June 30, 2023 on long-term debt, including the $85 million revolving credit facility, and our estimated interest commitments on interest rate swaps, calculated based on our varying margins by tranche of the Lampung facility and the $385 million facility and the fixed interest rate of the interest rate swaps since we are fully hedged, is approximately $16.8 million. Further we have $24.5 of principal outstanding under the $85 million revolving credit facility, which matures on January 1, 2023. We have no additional material commitments owed in the twelve months ending June 30, 2023. Payments on long-term debt, including the Lampung facility and the $385 million facility, of $257.6 million are due after June 30, 2023. Our estimated interest commitments owed after June 30, 2023, are approximately $30.9 million.

At present, we have limited sources of available working capital borrowings. As of June 30, 2022, the Partnership has fully drawn on the $63 million revolving credit tranche of the $385 million facility and has an undrawn balance of $60.5 million on the $85 million revolving credit facility from Höegh LNG. However, we have received notice from Höegh LNG that it will not extend the $85 million revolving credit facility when it matures on January 1, 2023, and that it will have very limited capacity to extend any additional advances to us beyond what is currently drawn under such facility. Also, further drawdowns on the $85 million revolving credit facility may be subject to Höegh LNG’s consent because of the Notice of Arbitration (“NOA”) received from the charterer of PGN FSRU Lampung on August 2, 2021. With these recent changes, our liquidity and financial flexibility were reduced. Höegh LNG’s ability to make loans under the revolving credit facility may be further affected by events beyond its and our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, our and their ability to comply with the terms of the revolving credit facility may be impaired.

As of June 30, 2022, we had cash and cash equivalents of $42.4 million. Current restricted cash for operating obligations of the PGN FSRU Lampung was $6.5 million and long-term restricted cash required under the Lampung facility was $11.0 million as of June 30, 2022.

As of June 30, 2022, the Partnership's total current liabilities exceeded total current assets by $18.8 million. This is partly a result of the current portion of long-term debt of $46.4 million being classified as current while restricted cash of $11.0 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 and the outstanding balance on the $85 million revolving credit facility which matures on January 1, 2023. The current liabilities are expected to be funded, for the most part, by future cash flows from operations. The Partnership does not intend to maintain a cash balance to fund the next twelve months' net liabilities. We believe our cash flows from operations, including distributions to us from Höegh LNG Cyprus Limited, and Höegh LNG FSRU Ltd as payment of intercompany interest and/or intercompany debt or dividends and payments under the Suspension and Make-Whole Agreements, will be sufficient to meet our debt

20

amortization and working capital needs and maintain cash reserves against fluctuations in operating cash flows and pay distributions to our unitholders at our current level of distributions, for the next twelve months, assuming our continuing compliance with the covenants under our credit facilities and assuming that the Partnership’s vessels remain fully operational and that revenues are generated as per existing contractual terms.

On May 13, 2022, the Partnership paid a cash distribution of $0.3 million, or $0.01 per common unit, with respect to the first quarter of 2022.

On May 16, 2022, the Partnership paid a distribution of $3.9 million, or $0.546875 per Series A preferred unit, for the period commening on February 15, 2022 to May 15, 2022.

On August 12, 2022, the Partnership paid a cash distribution of $0.3 million, or $0.01 per common unit, with respect to the second quarter of 2022.

On August 15, 2022, the Partnership paid a distribution of $3.9 million, or $0.546875 per Series A preferred unit, for the period commening on May 16, 2022 to August 14, 2022.

For the period from April 1, 2022 to August 24, 2022, no Series A preferred units or common units were sold under the Partnership’s ATM program.

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

Six months ended

June 30, 

June 30, 

(in thousands of U.S. dollars)

2022

2021

2022

2021

Net cash provided by (used in) operating activities

    

$

20,901

    

$

21,066

    

$

32,201

    

$

37,218

    

Net cash provided by (used in) investing activities

 

(1,174)

 

 

(2,335)

 

Net cash provided by (used in) financing activities

 

(15,988)

 

(24,121)

 

(31,853)

 

(45,106)

Increase (decrease) in cash, cash equivalents and restricted cash

 

3,739

 

(3,055)

 

(1,987)

 

(7,888)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(48)

 

49

 

(28)

 

(1)

Cash, cash equivalents and restricted cash, beginning of period

 

56,214

 

46,180

 

61,920

 

51,063

Cash, cash equivalents and restricted cash, end of period

$

59,905

$

43,174

$

59,905

$

43,174

Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $32.2 million for the six months ended June 30, 2022, a decrease of $5.0 million compared with $37.2 million for the six months ended June 30, 2021. Before changes in working capital, cash provided by operating activities was $38.9 million for the six months ended June 30, 2022, a decrease of $2.2 million compared to $41.1 million for the six months ended June 30, 2021. The decrease was primarily due to higher vessel operating expenses and higher administrative costs incurred partially offset by higher time charter revenues.

Changes in working capital decreased net cash provided by operating activities by $6.7 million for the six months ended June 30, 2022, compared to a decrease of $3.8 million for the six months ended June 30, 2021. For the six months ended June 30, 2022, changes in trade receivables, prepaid expenses and other receivables and trade payables contributed to the decrease in working capital while changes in amounts due to owners and affiliates and accrued liabilities and other payables partially offset the decrease in working capital. For the six months ended June 30, 2021, changes in trade receivables, prepaid expenses and other receivables and value added and withholding tax liability contributed to the decrease in working capital while changes in trade payables, amounts due to owners and affiliates and accrued liabilities and other payables partially offset the decrease in working capital.

21

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $2.3 million for the six months ended June 30, 2022 compared with nil for the six months ended June 30, 2021. Net cash used in investing activities of $2.3 million relates to payment on principal on advances to joint ventures in relation to financing the ongoing drydock for the Neptune and in relation to the refinancing of the Cape Ann debt facility.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities for the six months ended June 30, 2022 was $31.9 million compared with $45.1 million for the six months ended June 30, 2021.

Net cash used in financing activities for the six months ended June 30, 2022 was mainly due to the repayment of long-term debt of $26.1 million which includes repayment of $13.3 million on the Lampung facility and repayment of $12.8 million on the $385 million facility, our payment of cash distributions to our common unitholders of $0.6 million and our payment of cash distributions to the holders of our Series A preferred units of $7.8 million. This was partially offset by the receipt of $2.6 million in indemnification payments received for 50% of the amount of expenditures incurred in the fourth quarter of 2021 pursuant to the Suspension and Make-Whole-Agreements.

Net cash used in financing activities for the six months ended June 30, 2021 was mainly due to the repayment of long-term debt of $22.3 million which includes repayment of $9.5 million on the Lampung facility and repayment of $12.8 million on the $385 million facility, and our payment of cash distributions to our common unitholders of $30.2 million and our payment of cash distributions to the holders of our Series A preferred units of $7.8 million. This was partially offset by the receipt of $6.0 million under the $85 million revolving credit facility and proceeds of $9.1 million for the issuance of common units and Series A preferred units under our ATM program.

As a result of the foregoing, cash, cash equivalents and restricted cash decreased by $2.0 million for the six months ended June 30, 2022, while cash, cash equivalents and restricted cash decreased by $7.9 million for the six months ended June 30, 2021.

Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $20.9 million for the three months ended June 30, 2022, a decrease of $0.2 million compared with $21.1 million for the three months ended June 30, 2021. Before changes in working capital, cash provided by operating activities was $18.3 million for the three months ended June 30, 2022, a decrease of $1.9 million compared to $20.2 million for the three months ended June 30, 2021. The decrease was primarily due to higher vessel operating expenses and higher administrative costs incurred partially offset by higher time charter revenues.

Changes in working capital increased net cash provided by operating activities by $2.6 million for the three months ended June 30, 2022, an increase of $1.7 million from a contribution of $0.9 million for the three months ended June 30, 2021. Changes in amounts due to owners and affiliates as well as changes in accrued liabilities and other payables positively impacted net cash provided from operating activities for the three months ended June 30, 2022. This was partially offset by changes in trade receivables and changes in trade payables which negatively impacted cash for the three months ended June 30, 2022. For the three months ended June 30, 2021, changes in amounts due to owners and affiliates, accrued liabilities and other payables and trade payables positively impacted net cash provided while the increase was partially offset by changes in prepaid expenses and other receivables and changes in value added and withholding tax liability which negatively impacted cash for the three months ended June 30, 2021.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $1.2 million for the three months ended June 30, 2022 compared with nil for the three months ended June 30, 2021. Net cash used in investing activities of $1.2 million relates to payment on principal on advances to joint ventures in relation to the refinancing of the Cape Ann debt facility.

22

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities for the three months ended June 30, 2022 was $16.0 million compared with $24.1 million for the three months ended June 30, 2021.

Net cash used in financing activities for the three months ended June 30, 2022 was mainly due to the quarterly repayment of $5.4 million on the Lampung facility, the quarterly repayment of $6.4 million on the $385 million facility, our payment of cash distributions to our common unitholders of $0.3 million and our payment of cash distributions to the holders of our Series A preferred units of $3.9 million.

Net cash used in financing activities for the three months ended June 30, 2021 was mainly due to the quarterly repayment of $4.8 million on the Lampung facility, the quarterly repayment of $6.4 million on the $385 million facility, our payment of cash distributions to our common unitholders 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 the receipt of $6.0 million under the $85 million revolving credit facility.

As a result of the foregoing, cash, cash equivalents and restricted cash increased by $3.7 million for the three months ended June 30, 2022, while cash, cash equivalents and restricted cash decreased by $3.1 million for the three months ended June 30, 2021.

New Cape Ann Facility

On June 1, 2022, the SRV Joint Gas Two Ltd, a joint venture owned 50% by the Partnership, and the owner of the Cape Ann, closed the refinancing of the Cape Ann debt facility (the “New Cape Ann Facility”) which has an initial loan amount of $154.1 million and which is scheduled to be fully amortized with quarterly debt service over a period of 8 years based on an annuity repayment profile. The New Cape Ann Facility replaces the balloon amount of $169 million that was repaid under the previous debt facility secured by the Cape Ann. The difference in the loan amount was mainly financed by cash held by SRV Joint Gas Two Ltd and subordinated shareholder loans from the shareholders, including a new subordinated shareholder loan of $1.2 million from the Partnership. The New Cape Ann Facility bears interest at a rate equal to three months LIBOR plus a margin of 1.75%. The interest rate swaps entered into under the previous Cape Ann debt facility have a remaining tenor of 8 years and have been novated from the previous group of swap providers to the new lenders and restructured to match the New Cape Ann Facility's loan amount and amortization plan. The interest rate swaps are not reflected in the above-mentioned interest rate for the New Cape Ann Facility. The fair value of the swaps as of June 30, 2022 was $1.3 million.

The New Cape Ann Facility is secured with a first priority mortgage of the Cape Ann, an assignment of its rights under the time charter and a pledge of the borrower’s cash accounts. We and the other owners of the borrower have provided a pledge of shares in the borrower as security for the facility. In addition, each of the Partnership and MOL guarantee payment of their 50.0% share of amounts owed under the New Cape Ann Facility, up to a specified cap of $15 million in aggregate and until the date falling three years after utilization of the New Cape Ann Facility.

Under the New Cape Ann Facility, the borrower must maintain a debt service coverage ratio of not less than 1.05 for the preceding twelve-month period, being tested on a quarterly basis.

Furthermore, the borrower is required to maintain insurance coverage for damage to the FSRU equivalent to 120.0% of the aggregate outstanding loan balance and loss of hire insurance. The borrower must maintain cash accounts with the syndicate of banks for its operating account and restricted cash for debt service for the next six months, including interest payments on the facility and associated interest rate swap contracts and certain distribution accounts. Cash in the operating account from hire rates will be applied for the following purposes in the following order; first, to pay operating costs, insurance, taxes and technical management fees; second, to transfer to the debt service retention account on each debt service retention date all or part of the debt service retention amount for such debt service retention date; third, to transfer funds to the restricted cash account for debt service until reserve requirements are met; finally, to transfer funds to certain distribution accounts. Certain conditions apply to making distributions from the distribution accounts, including meeting a 1.20 historical and projected debt service coverage ratio, no event of default must then be continuing, and debt service reserve and retention accounts are fully funded. The facility agreement limits the borrower’s ability to raise additional debt, enter into certain material transactions and make guarantees.

23

The New Cape Ann Facility identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including total loss or sale of the Cape Ann. The New Cape Ann Facility contains customary events of default such as:

change of ownership;
inaccuracy of representations and warranties;
failure to repay principal and interest;
cross-default to other indebtedness held by the borrower;
bankruptcy and other insolvency events related to the borrower; and
breach of the charter.

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 June 30, 2022 and 2021, 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 June 30, 2022, 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

$

56,994

$

360

 

Sep 2026

 

2.800%

$385 million facility swaps (2)

 

LIBOR

$

49,738

$

157

 

Jan 2026

 

2.941%

$385 million facility swaps (2)

 

LIBOR

$

49,738

$

297

 

Oct 2025

 

2.838%

$385 million facility swaps (2)

 

LIBOR

$

49,738

$

446

 

Jan 2026

 

2.735%

$385 million facility swaps (2)

 

LIBOR

$

49,738

$

541

 

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.

Foreign Currency Risk

All financing, interest expenses from financing and most of our revenue and expenditures for vessel improvements are denominated in U.S. dollars. Certain operating expenses can be denominated in currencies other than U.S. dollars. For the six months ended June 30, 2022 and 2021, no derivative financial instruments have been used to manage foreign exchange risk.

Credit Risk

Credit risk is the exposure to credit loss in the event of non-performance by the counterparties related to cash and cash equivalents, restricted cash, trade receivables, amounts due from affiliates, net investment in financing lease and interest rate swap agreements.

24

Further, the Partnership has future exposure for Höegh LNG’s ability to make payments to the Partnership for the Suspension and Make-Whole Agreements and 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. NFE Atlantic Holdings LLC, a subsidiary of New Fortress, guarantees the performance of the charterer under the NFE Charter, subject to a cap on its total liability.

Concentration of Risk

Financial instruments, which potentially subject us to significant concentrations of credit risk, consist principally of cash and cash equivalents, restricted cash, trade receivables and derivative contracts (interest rate swaps). The maximum exposure to loss due to credit risk is the book value at the balance sheet date. We do not have a policy of requiring collateral or security. Cash and cash equivalents and restricted cash are placed with qualified financial institutions. Periodic evaluations are performed of the relative credit standing of those financial institutions. In addition, exposure is limited by diversifying among counterparties. There are three charterers so there is a concentration of risk related to trade receivables. 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, the Höegh Gallant or the Höegh Grace terminate prematurely, or the option to acquire the PGN FSRU Lampung be exercised, there could be delays in obtaining new time charters and the hire rates could be lower depending upon the prevailing market conditions.

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.

25

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:

Six months ended June 30, 2022

Joint venture

Majority

FSRUs

Total

held

(proportional

Segment

Elimin-

Consolidated

(in thousands of U.S. dollars)

    

FSRUs

    

consolidation)

    

Other

    

reporting

    

ations(1)

    

reporting

 

Reconciliation to net income (loss)

 

  

 

  

 

  

 

  

 

  

  

 

Net income (loss)

$

35,646

 

13,154

 

(15,581)

 

33,219

$

33,219

(3)

Interest income

 

(6)

 

(41)

 

(383)

 

(430)

41

(4)

(389)

Interest expense

 

2,565

 

4,135

 

7,940

 

14,640

(4,135)

(4)

10,505

Depreciation and amortization

 

10,245

 

4,979

 

 

15,224

(4,979)

(5)

10,245

Other financial items (2)

 

1,141

 

(5,706)

 

63

 

(4,502)