Morgan Stanley

Morgan Stanley May 17. 2015 Dynagas LNG Partners Solid Results with Highly Attractive Yield Industry View Stock Rating In-Line Equal-weight Price Target $23.00 DLNG reported solid 1Q results with distributable cash flow above estimates. DLNG's current annualized distribution of $1.69 offers a generous 8.6% yield with 1.2x coverage ratio. The dropdown of two already contracted vessels, could grow another 9% by year-end suggesting —9.5% a 1-yr forward yield DLNG reports solid 1Q. DLNG posted 1Q results in-line with estimates, with distributable cash flow of $18.0m or $0.51 per unit during the quarter, above our $16.4m ($0.39/sh) estimate. Net revenue of $34.9m was in line with consensus' and our estimates. EBITDA of $27.7m was also in line. DLNG maintained its quarterly distribution at $04225, offering an annualized yield of 8.6% at the current price, with 7.8x P/DCF in 2015 (vs. MLP peer group average 5.1% and 18.7x). (See: Exhibit 2) Highly attractive dividend with high growth. DLNG has grown its fleet from 3 vessels at the time of its IPO in 4Q13 to 5 vessels (2 tri-fuel and 3 steam turbine). The current fleet has an average charter duration of 4.8 years, with the earliest expiration in 3Q17. DLNG's dropdown pipeline comprises 3 vessels on the water and 2 newbuilds which are expected to be delivered in 2015. We expect DLNG to complete its next dropdowns in 2Q and 4Q of this year. However, management plans to finance the dropdowns with 55-60% equity and CEO Tony Lauritzen noted that issuing equity at the current share price may not be in shareholder's best interest At its current yield of 8.6%, DLNG trades at a premium to its peers. We see this as an attractive entry point, especially considering management reiterated its commitment to growing the distribution by 10% per annum. LNG shipping outlook remains positive despite near-term market weakness. While rates for modern 160k cbm LNG carriers have deteriorated to $33kpd (-54% YoY), DLNG's fleets contract coverage keeps the company well insulated from the current market weakness. We expect the LNG carrier market to be much tighter by the time DLNG's charter contracts begin to expire. We estimate —150mtpa of new LNG capacity is scheduled to come online through 2020. As a result we expect that the market will need -70 more newbuilds in addition to the 143 currently on order to serve these projects. Our revised $23 PT (from $24) values the company based on a 3-year target yield of 8.5% as we expect distribution to grow to -$1.85 by the end of the year from the dropdown of the two contracted newbuilds and reach -$1.95 after the remaining 3 vessels held by the sponsor have secured long- term contracts. El Dynagas LNG Partners I May 17, 2015 MORGAN STANLEY RESEARCH MORGAN STANLEY & CO. LLC Fobs Giannakoulis [email protected] •1 212 761-3026 Matthias Degen [email protected] • 1 212 761-6218 Sherif Elmaghrabi [email protected] • 1 212 761-8192 go Morgan Stanley appreciates your support in the Institutional Investor 2015 All-America Equity Research Team Survey. Request your ballot. Dynagas LNG Partners DLNG,N. DLNG US : Maritime Industries / Marshall Islands Stock Rating Industry View Equal-weight In-Line Price target $23.00 Shr price, close (May 15, 2015) 520.2: Mkt cap, curr (mm) 5718 52-Week Range S25 50-13.66 Fiscal Year Ending 12/14 12/15e 12/16e 12/17e ModelWare EPS ($) 1_58 L72 1.93 1_82 Prior ModelWare EPS L77 1.82 L78 (5) P/E 10.4 118 103 us Consensus EPS ($)5 154 L75 1.86 L98 Div yld (96) 9.4 8.7 9.3 9.1 u Alm of enade noted, all metrics ant bawd on Morgan Stant.' ModOlWare framework S - Contents data .t pro. ded by Thomson Rea tots E gnaws a - Morgan Sunk, R.tn,ch 4StMilikf QUARTERLY MODELWARE EPS (S) 2015e 2015e 2016e 2016e Quarter 2014 Prior Current Prior Current Q1 0.37 0.43a 0.45 0.49 Q2 0.34 0.45 0.38 0.43 0.45 Q3 0.42 0.46 0.47 0.48 0.51 Q4 0.44 0.47 0.43 0.45 0.48 e • Morgan Sian by Research estonwt, a • ACOMCOMpany /opened data Exhibit 3: Results vs. Estimates (S million) M al Actual MS. % A Consensus. %A Revenue 34.9 35.5 -2% 35.6 -2% EBITDA 27.7 27.7 0% 27.5 1% Net Income 15.2 14.8 13.1 DCF $0.51 $0.39 Sou, “ Company Data. Thomson R u toes, Morgan Stanley Research Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. EFTA01098726 Morgan Stanley Dynagas LNG Partners I May 17. 2015 MORGAN STANLEY RESEARCH Risk-Reward Snapshot: Dynagas LNG Partners (DLNG, Equal-weight PT: $23) Risk-Reward View: Distribution Growth Driving Valuation 335 30 25 20 is ID 5 0 aleti3 Nov.13 1/07-14 • Pr,* T.0•104•00 Source: Thomson Reuters. Morgan Stanley Research estimate Price Target $23 Bull $30 Next 12-month distribution to -51.95 @ 6.5% Yield 3-yr distribution CAGR 5-6% 3-year fwd yield 6.5-7% Base $23 Next 12-month distribution -41.85 @ 896 Yield 3-yr distribution CAGR 3.5% 3-yr fwd yield: -8.5% Bear $14 NAV at 512/sh P/NAV: 115% Moeda . 1•10:0[10 11100 PoWymorap Derived from our base case. $30 00 (.53%) 123.0010M • Mery-15 N0v-1S • Ong Soca Ore* $14 03 (le%) Mey.18 Dropdown pipeline increases as the sponsor finds firm contracts for all the newbuilds. Growing global liquefaction capacity drives shipping demand and rates higher, as further projects are announced. Dropdowns from parent accelerate as delivered vessels find long-term contracts, while there are further significant acquisition announcements. DLNG builds its capacity and increases it annualized distribution to over 51.90 within 2015. As the dropdown pipeline expands and dividend distribution growth increases the stock trades at lower yield. Dropdown of the remaining contracted vessels owned by the sponsor proceeds before the end of 2015. DLNG acquires the vessels owned by its sponsor that have firm long-term charter contracts, expanding its fleet to 7 ships before the end of 2015, raising its distribution close to $1.85. The long-term outlook for LNG shipping remains strong as new LNG supply is expected to grow significantly beyond 2016-17, allowing DWG's sponsor to secure profitable contracts for the un-contracted newbuilds. Significant project delays and growing orderbook drives LNG rates lower and postpones DING growth ambitions. Liquefaction capacity experiences serious delays and regulatory hurdles slow the development of planned projects. LNG vessels continue to be delivered as scheduled, while new vessel orders are placed. LNG rates start dropping as the market faces problems of oversupply. Investors start having concerns about the rechartering of existing vessels at lower levels increase. DLNG's stock drops below the issue price making dropdowns harder. The stock trades at a slight premium to NAV. Investment Thesis • Growing modern ice class fleet that can achieve a premium over market rates. • Strong pipeline of dropdowns with vessels already chartered to top CC4J nterparties. • Favorable demand fundamentals for LNG as growth in liquefaction capacity additions accelerate after 2015. Key Value Drivers • Modern fleet of ice class LNG carriers that can achieve premium rates and are very flexible in trading • Distribution offering an attractive yield that is set to grow with dropdowns. • Highly experienced management with successful track record in the shipping industry. Potential Catalysts • Dropdowns allow DLNG to increase its distribution. • Stock gets valued at a lower dividend yield, like its larger peers. • Additional vessel acquisition and signing of long- term contracts.. Risk to Our Price Target • Counterparty risk on long-term charters. • Distribution growth does not materialize as expected. • Deterioration of the supply-demand balance increases rechartering risk for DLNG vessels. • Vessel oversupply and delayed activation of liquefaction capacity weigh on market. • Small size compared to peers. 2 EFTA01098727 Morgan Stanley 1Q15 Earnings Comparison Exhibit 2: 1Q15 Earnings Comparison 4 in eitiemn) Ilet TCE ~moe Onm ~bs eremen9 omme maragemen1 bes Gmemi and eammenine moeien 1ø00A Deonvamen a rimcnamen ERAT frame perse inimesi omme Nce.commem neme Tams Ces Rei indom. I094,41..91 ~G P 2% miese e Not iname ion C P scrom15.116430.1a Nal *vadatde lor t P Maismatm9) limma or 534 9in .2% 9 0°) bias in-line with sommen' and ow acomalim a 04A9 Mccmc Oeher nencusi este Pion teten Me Mama, Emilmanan riemen/ce ~A NET 11103142 144441 Total uld• ouistansem (m) Pet en/ data LP ~we Peg uni K.MP1 LP Iroame Per um1Cceratem Dta1nboist5a ta., flow per t„54 OitInbutron va« peyout fa n % of clel.balatle ~ba Oéstributebit Cash flow Rinoecanaeon EMMA Le 51/e,e51 1.55 Marisonce f~hon Mart4uce Capo. Otrwt, CØ urmt meneetion <overat rond Inas oniributien cenerep Forum-we Potig., Ne1Det1 Flat Valoe r1 Debl r F 1e41 Vake 11/11)rbi 0 I III1DA. rw.ta Opname Anten* aow Ram .4. (Modi Menno Caty OP*. (5441 remam 44ty *memmen, lees nl CAM MMO Moed rc OIA (PMI1 Awimm 11 or wants keurs*: Company Data, Morgan Stanley Research (69) PO) 0.1 04 04 152 14.1 13.1 142 14.3 (0/ 14.11 14.1 365 423 042 Gal 043 031 OM all 5.» 0-422 1423 I13% 10" :n til (7.0) (n0) 109) 0 7) 04A 94 PLO 14.41 la la Ib 1A Sal 544 077 977 54% 55% 4514 tL 75 1Il 122 13.3 1.0 111.0 172 to 00 Dynagas LNG Partners May 17. 2015 MORGAN STANLEY RESEARCH Achaál vs b1.5 Street 4% 4% 41% 0% 1% MW.." 1014 201 0.1) (3.7) 0 1111 14L2 133) IL AMBO 4011 Ni 051 (12) (061 25 (11) na 04444 ESE Moa 70% 4% 71% 4% 4% aa 2015 MI (11) 2) (0a 27 7 (53) 21.3 Smet 20 15 Ut 30 3 23.5 In n. Sem, 4% MS Strem 0o0 OoO 1% 11% 0% 9% Vin OM n0) 0 01 0.4 04 11/ ILT lg 115 1% .2% .3% • • • • • MA JU 11.0 Ill3 356 422 037 041.3 032 0.37 044 (1.11 0.13 003 %IN 0423 .1.443 1I3% KO al 7/.7 3.3 ILN Ale DO OM 4241 (47) 03 0.4 C% M.2 as1 3% tel Lix Lia 101 530 551 all 9157 5/5 110% 4.32 5.13 715 77 0% OS% 116 121 1% 133 90% 0% 1J 35 1% it -02% 4% 163 159 1% 11.1 it% 30 50 to 3 EFTA01098728 Morgan Stanley Valuation & Dividend Exhibit 3: Valuation Summary Ogren price per will 519.6 Yield to Growth CurTent annualized distributscn $1.69 Next t1 =tom distnbutien SIM 3-year diunbutim CAGR 3.5% 2Q 18 fwd AnnuaNzed Distreaution $1.94 Target Syr Forward Yield 8.5% Price Target $23.0 Current yield 8.6% I .Teer Forward Yteld 9.6% I.Tear Target Yield 8.2% Nestle 17.6% Total Return 21% a.d•nd Discoaml uexNl Current annualized diuntiution $1.69 MR Tr 1.4 IA CAGR Tr 4.9 0.5% Terminal dividend yield 9.0% Average ccomer ratio 1.1x Discount rate 9.0% Terminal Oscan, rate 9.5% Equity value per unit in 121$ months 113.2 vow;(d CMn F.ow (or..y (oreent Ileel Net kr pee unit $13.3 00 value per vessel dal) 202 Price/CCF per unit 1473 Peke Target / IXF per wit 173% EY/CCF value 122% Target CV/C0 value 135% Discounted Cash Flaw including IS OlOpdown wil14.0 Net 00 per will $13.8 OCF value per vessel ISM) 217 Prke/OCF per wilt 141% Peke Target / OCF per wit 166% EY/DCF value 1141 Target EY/IXF value 166% NAV L1qui0atta Value NAY per snit $12.1 Beer Cam 115% of NAY) $14.0 Downside (V/ESITDA EN10A CY/ENTIM Target CV/CINTDA 2015e 125 mix 12.6x 1016e 173 10.6x MN 2017e 202 10.6x 11.6x 2018e 209 10.5x 11.4 Source: Company Data. Morgan Stanley Research Exhibit 5: Distribution Growth & Coverage Ratio Dynagas LNG Partners I May 17, 2015 MORGAN STANLEY RESEARCH Exhibit 4: Dividend Growth Forecast annualised eel ships $2.00 CiMilend )2 $1.95 %III $114 $1.94 SLIM $1.14 II 10 $1.90 $1.85 $1.80 $1.75 SIDS , $ Side SUN $I 70 $1 60 I I $1.65 $1.55 4(114 1015 Source: Company Data, Morgan Stanley Research 4015 4(116 4(117 4Q18 4Q19 4Q10 4Q14 1Q15 4Q15 4Q16 4Q17 4Q18 4Q19 4Q20 sh flow per share $2.09 $2.39 $2.59 $2.88 $2.80 $2.82 $2.81 $2.78 terty distribution $1.69 $1.69 $1.77 $1.88 $1.94 $1.94 $1.94 $1.94 YoY growth 4.7% 6.2% 3.2% 0.0% 0.0% 0.0% Dividend Yield 8.6% 8.6% 9.1% 9.6% 9.9% 9.9% 9.9% 9.9% Coverage Ratio 1.2x 1.2x 1.1x 1.2x 1.1x 1.1x 1.1x 1.1x units outstanding 35.5 35.5 46.9 54.6 58.3 58.3 58.3 58.3 YoY growth 32.1% 16.4% 6.9% 0.0% 0.0% 0.0% Not ships 5 5 7 9 10 10 10 10 Source: Company DatasMorg an Stanley Research 4 EFTA01098729 Morgan Stanley Dynagas LNG Partners I May 17, 2015 MORGAN STANLEY RESEARCH Exhibit 6: DCF Valuation De/ falma Din vsua (tol Avg. Valte Tota DCF G e 0% lor 11xed dan. 9 0% lor open dan and Li MIN 0157~ I al rena An. Age 5m Sper dua FSRU - DCF (leet .aue I ,011 28.5 INGurner - Tri.lte 2 1.9 24 495 Len: Refra ring Cape. (0) (0.0) INGcarrler-Steam-turbare 3 7.9 172 $15 Cain Er (Q taleel 14 0.4 DCF Floet Vakre (m) 5 5.5 2/72 1.011 Itiestileted (atti 24 0.7 otner Drent asett 2 0.0 DCF of ~audn; (apex o InatUnerits • Total dat 1461 (15.4) Net / Eltet valne 571 Guffent habilities 1131 10.4) eki% Net dent / Fleet vake °eposa% 525 • DCF Vatuation 471 13.3 of (Ans oss, tratutedi 35.5 DCF per unit $ 13.3 Pnce / DCF 1475 EV / DCf tie« Vake 1225 DEL flat Vetve 919 DCF Elet Veive per venel 202 EV per rassel 244 Source: Company Data. Morgan Stanley Research estimatet Exhibit 7: DLNG's Fleet Value & NAV Estimate anneranausse Flat Vakt* ut0 I cd vensels An. Age Avg. Value Total $ per dure 5 in FSRU - [led vake. 597 27.2 (MG terrier • fri -luet 2 /.9 221 443 Depouts ING urrier. Stam.turtnne 3 7.9 lis 524 Cash tz Cquivatents 14 0.4 Fleet Value (ml 5 5.5 193 947 Restricted Cash 24 0.7 Otrer CUlfeel råen 2 0.0 net delx/Fleet Vane 54 Invesunats • Het dal / fleet Value • Depasits 54 Total dat (NN (15.9) Current 141911(11es (13) (0.41 Non-contretting eneren NAV 421 12.1 I or uflitt ost (dautedi 35.5 NAV per unit $ 12.1 Peke / NAV 16251 EV / Ad). Fleet Value 1255 Ad). Fleet Veive 365 lkarldation Value per anal 1131 EV per rassel 244 Source: Company Data, Morgan Stanley Research 5 EFTA01098730 Dynagas LNG Partners I May 17. 2015 MORGAN STANLEY RESEARCH Morgan Stanley Income Statement Exhibit 8: Dynagas Partners — Income Statement egithetiliil MIEZMIZEMIIISIIENEMZEIDM Itts:ce'tt.; 'thee, hue Dam 114.46.4 Remmie 23 20 3 36 35 35 44 44 II SI 50 59 63 57 6.4 se 5 7 II 63 21 • 105 - • 35 124 - 221 241 23 11, 56 Ila I so 31 26 34 34 34 11 44 44 II 61 a a 63 It 71 144 14 1641 la 221 244 274 Demi onset memo"; omens* 3" (3) (31 (5) (5) Oh 161 (71 MI 494 61) 00) (10) III) 02) (131 113) 112) 07) 1271 1361 (504 (93) OnrOossog cosi . ' ' ' ' ' ' ' ' ' ' ' (1 11) ' ' ' (2) 11) 01 ( 1) II) 0/ II I) ill 01 (II 111 (21 is) 61 <2/ 82) (3) 13) Is) 1) i 151 17I (91 (10) minagonon i.e. 1 Gee", aftl atimattsbatne •Aposs44 a (I) I ) (0) al (2) EMI" 4' t. : g) g) g) 2$ 2 2 42 4/ g gt 48 : IA 173 agl 219 Decrimeticn (31 444 64 443) 61 61 (-04 (II (10) 00) III/ 0 1) 112) 112) (14) 114) 1141 (16) 4201 1411 6 11 1541 EIIIT 13 II 17 23 22 11 27 27 31 31 95 M 16 14 41 311 $6 44 941 132 IS 113 rlata$164•6.• al al (3) 17) Eh 174 (71 (61 491 60 110) 1101 01) 02) 01) 10 ) 00) (14) 69) ()SI (461 (50) inegott inCOtnt t • 0 0 0 0 0 0 0 0 0 0 0 0 I I 1 Ore 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (0) 1 2 2 1 2 Esmings before bons 11 It 14 16 16 IS 20 19 23 22 hi 26 16 23 20 27 46 61 60 06 104 104 tat 0 ett • • - • • • - - • . . - MR 9480444 II 10 14 16 16 16 20 19 13 22 20 21 20 13 21 2? 46 II 44 14 104 144 Non Cerartli. tifentil • • • • Net bmeen• Available kw LP (Opsesermt 11 10 14 19 15 11 20 19 23 22 24 56 26 23 M 0 46 4 69 94 104 115 Mmavanson to CAAP mane Ore. 1nirall terns 11,0441r0-, SO 0' 41.415 Itngarnterls. Erraacr.M Other 0_101 (01 0) • Net Income (044.9) LP Kama pc oh iC44.442) - Mot 5037 5032 1042 1043 $042 $036 5047 5043 504 1 045 $ 051 5 046 1 046 5 040 5 050 5 046 5152 $ 156 11.7 51.93 $ 112 $ 161 1.9 Intone pe.mt,G64Pp6 Knee 5037 6034 50 42 10 43 1042 $0311 50 41 1043 1049 $045 1051 S 044 $ 016 S 040 1 050 104 1132 SIM $170 5156 0162 0 IS1 1.111•140.00 011adod 10.17 10.34 $142 1044 10.43 60.31 $0.47 50.4 $046 $ 0.46 $ 061 1 OM $ 0.44 $ 0.46 5 0.56 50.4 $1.52 $ 1.47 $ 111 51.00 6112 6 1111 per unit (Opmattng) • DiSttlOuta014 tan no. pet tint 1041 1041 104 1051 10.60 10.60 1091 1 0.61 6 0.46 5 0.67 $ 0.73 5 0.72 1 OM S 014 5 0.74 1 070 1116 5 1.40 S 160 52.51 5 2.77 $ 2502 Ontntrumn "CI 1037 10 37 1031 5042 1042 $044 3044 $0465046$047$017 50161046$01950495049 SO 17 5 154 $ 1 77 5156 S 1 IS S 104 OistnIsmon 54tomirmeo Unita 5037 5037 $039 5042 $0.42 5044 5044 9046 504 500 5 047 9 OM 5 04 5 049 9 0.44 5 OAS 5017 5 134 9177 5156 f 113 5 141 Olsokeon GPImst41Uv1 MIAMI 5037 1037 5039 $060 5010 14.0 54.4 905 9107 WM 51136 11154 11314 $1433 11111 11111 50 1? 5 202 1146? $4143 111212 96531 Comm", ones 150 156 205 205 205 272 272 319 319 360 366 396 106 433 433 433 ISO 206 311 306 433 433 SotOftlnited ititil ISO ISO 150 ISO 60 150 ISO 150 ISO ISO ISO ISO ISO ISO 150 IS 0 Ise ISO !60 0 /SO ISO T016 ',ante OLP Lab oulatanting 300 306 355 35.5 355 422 422 469 469 508 9)6 546 546 563 583 56.3 _as 300 365 4.9 546 Se 3 513 Weolne0 average nMemil olmsts.4•44 300 304 311 355 36.5 355 422 45 49 Nil 500 527 MO 564 56 3 56.3 300 322 401 490 519 56 3 MOM swap nuats of mt. 01/140 300 304 35 2 335 566 355 422 45 IGO 45 500 522 516 564 55 3 913 300 112 103 400 869 5113 11•10 1.2% 54% IS% 11% 1.1% III% OA% (11% 11.0% 10% 11% II" Olt% 01% 0.9% 11.1% OS% 71% 11% 11.41% 111% OM ToMeAt °maw 1.124 1.124 IA* 1212 120 1 CM 1.173 I.00z lit I Its 1212 I I1k 100 OM 1.1414 IM Ills 1.1k 1.144 1644 Ilirs Sound: Company Data. Morgan Stanley Research estimates 6 EFTA01098731 Dynagas LNG Partners I May 17. 2015 MORGAN STANLEY RESEARCH Morgan Stanley Cash Flow Statement Exhibit 9: Dynagas LNG Partners - Cash Flow Statement ATEM€NT USO ',Mow IIIIIENIEIMMINEZI0NICIMEMZEDIS 10 14 IS 15 n 19 21 22 28 25 ZS 2.3 11 27 aa 96 M4 06 •DiVec4txn 8 amimmoce 3 4 5 6 6 6 a 8 10 to II II 12 12 14 14 14 25 II 63 so •5500 Oases cnonsmon •Cesno- asset 0µ'0f1 Oinir 0 5 1 11) 6 05, 8 asnl,ow rem IS 01 23 21 24 44 76 V4,54,4S, 4021,140.1 12101 (1951 10) 1405/ MA rad II11•10, drePtIOAM1 041) 12451 12241 12241 12241 (41171 14481 (2241 VOU411 disposal Ora .411bw Imm ImwVp Aconties GDP 010 01 • I I 1241 0241 (124) Moms, moose/ n meow fah (21 (II) (2) • 0112221/05 to la 50,1u.415CrOCCal, 95,05.541,045 055000PISC • Imam.* o 120 01 10/ 133 90 90 IC IC 1* lit 231 179 90 Snare 24~ . 01 . 4/ PrOtet.01k05, Deco 8 CAPIal haws 310 250 • • 109 142 134 124 Is 220 SO 256 269 134 Finn" lief i5.04.-in el ova at. IS 051 OM (01 to 11) A51 0 Ali M tn 125 SP e a N OS (11 nn on 11/ (14/) (F) 0 - 12.8 051 MN ktar,Vt C2 RV 15 Valt4perta a wos • • ReNtriltfl 01 Ms) nem Ceti OS/ 12191 (6) 0/ 15/ Ism m th (S1 14) OH 01 (11/ 01) (121 1121 121 . 1) (236) 031 (351 (46) (49) Repirrments o 44m4/4 lease oMpalons " IC Oninincei end to GP 10) (01 10) 10) (0) (01 (01 tO) 101 101 11) (11 II/ It) (11 11/ ) 10) al 13/ 61) Otioend oar) a) LP (5) (111 (13) 04) 11M (I5) 09) (19) 021 aio (24) oh (26) 031 121) • (431 M7/ (911 1109) (113) Era 0 10) Mei 0 0 ct 0 - CatAllow horn rimming Anivnies (II) 282 144 (20) 1201 221 (21) 220 1301 114 (34) 154 134) 122 011 1411 )86 a 11 theme In Cash I Cash 1044ralimar 3 11 (99 1 1 1 2 2 2 1 3 3 (0) in 2 111 i Coo w beg.rmong pertod 4 0 20 11 12 4 It 22 24 M 2? 31 33 33 31 32 0 4 12 24 33 Cash m end permd 9 26 11 12 18 it 22 24 26 2) 31 33 33 31 32 32 4 12 24 33 32 27 .4 24 2e 24 .4 .4 .4 2a 2. .4 .4 2. 24 24 Conn 3644141404 II 44 SS 34 42 43 4 4 10 II 10 Sr 93 48 k 84 25 N 44 sr se is 50200 Company Data. Morgan Stanley Research estimates 7 EFTA01098732 Dynagas LNG Partners I May 17. 2015 MORGAN STANLEY RESEARCH Morgan Stanley Balance Sheet Exhibit 10: Dynagas Partners - Balance Sheet BALANCE SHEET 444781 Con 8 ECtevaleols 9 20 11 12 II 19 22 24 26 27 31 33 13 31 22 32 Ras5061 Cast,. moi w., Memo E 4 Assets • • • • • • . • 2 I 1 2 2 2 2 1 2 2 2 2 2 2 1 2 Tenses Ors Garen "emirs Almmes Yams% al Cost 510 750 045 945 945 1 186 1.166 1 432 1.02 1658 5656 1979 1870 2.503 2.103 2 103 Aa.unt.ovd Dotvon)0^ (911 (99) oop (Ill oth i125., 5133) non I1521 061 (175) (MT) 1202, (2;:i (2241 2C4al toed Assets (book) 460 :I OM 640 04 1.969 1.041 1218 1149 1103 1.02 1.966 UM 1.144 1. 1476 RmermoCatA . !omen, ore. assets 12 6 24 5 24 10 24 10 24 9 24 9 24 9 24 9 24 24 9 9 24 9 24 9 24 9 24 9 24 9 24 9 Total Assets 411 706 893 817 407 1.114 1.116 1.361 1.150 1,566 1.554 1.773 1.761 1.970 1.957 1.942 MAMA* FMMY 9 II 15 13 18 18 IS 14 le 18 ill 18 le 18 18 '8 Orr tu•MA1001146 040 Coel Total 1461 214 336 610 679 670 474 4i1 MS 600 API $17 1,041 1631 1,114 1.142 IAN) Otel.619es 2 2 2 ShinttoMie• Enna, 343 390 216 214 254 430 431 1,34 130 430 111 712 MO TM 716 793 bee Ewer 454 6 7 Nurn..+If 0t suns ortne0 entl penO3 4 Welhis4 runes( 0099.9.41$ 30 3.1 Camcry tOWT m10..) 03 03 Capra', (COm er.14.) OA 09 Anorme 424 Deerra) 47 SA Source Company Data, Morgan Stanley *finnan, 5 40 SO SO 50 60 60 70 70 $0 60 04 44 OA 05 OS 06 06 07 07 01 011 06 08 09 09 II 12 12 14 4> SO 52 55 57 60 65 47 70 9 90 04 14 7,2 10 90 6 >5 10 100 08 7 INSIENEEICEMIIIIMENEM/MICE 6 540 4822 413 22 7 419 12 24 33 32 27 2 2 2 2 2 045 1452 1679 2.103 2•103 (74 036 ct75) gotta IA* 1J41 324 24 24 24 24 24 10 9 9 9 9 817 1.357 1.773 1.942 1.882 9 13 18 16 18 le 0 0 0 0 TTO I 1 1 1,1 2 1 I 1 1 10 3 100 30 34 06 06 02 04 II 16 04 04 I 0 64 50 60 75 95 06 0e 14 14 TO 50 4 It) 10 100 06 14 90 8 EFTA01098733 Dynagas LNG Partners I May 17, 2015 MORGAN STANLEY RESEARCH Morgan Stanley Dividend Discount Model Exhibit 1L Dividend Discount Model Dividend Discount Model Yr 0 Yr1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 tl 7 Yr8 Yr 9 Yr 10 Per unit data 2Q 15 2Q 16 2Q 17 2Q 18 20 19 2Q 20 20 21 20 22 20 23 20 24 20 25 Available distributable cash flow per unit 51.92 $2.00 $2.02 32.01 $2.01 $2.01 52.01 $2.01 $2.01 Actual paid distribution per unit $ 1.77 $ 1.88 $ 1.94 $ 1.94 $ 1.94 $ 1.94 $ 1.95 $ 1.96 $ 1.97 $ 1.98 $ 1.99 Coverage ratio 1.04x 1.11x 0.99x 1.05x 1.07x 1.07x 1.07x 1.07x 1.07x 1.07x 1.07x Paid distribution growth 3.2% 0.0% 0.0% 0.5% 0.5% 0.5% 0.5% 0.5% 9.0% Terminal value of paid distribution $22.1 PV of paid distributions per unit $1.72 $1.63 $1.50 $1.37 $1.26 $1.16 $1.07 $0.99 $0.91 $0.84 Sum of PV of paid distributions per unit $12.47 PV of terminal value 8.92 Equity value per unit $21.38 Current annualized distribution $ 1.77 Equity value per unit in 12 months $23.15 Assumptions 1-4-year paid distribution CAGR 2.3% 5.9-year paid distribution CAGR 0.5% Terminal equity trading yield 9.0% Average coverage ratio 1.1x Discount rate 9.0% Terminal discount rate 9.5% Market implied discount rate before GP interest 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% GP share of distributions 0.1% 1.1% 2.4% 3.2% 6.2% 6.4% 6.5% 6.6% 6.8% 7.2% Terminal discount rate 9.5% Average discount rate 9.0% Source, Company Data. Morgan Stanloy Rosoaich estimate 9 EFTA01098734 Morgan Stanley Dynagas LNG Partners I May 17. 2015 MORGAN STANLEY RESEARCH Disclosure Section The intonation aid opinions in Morgan Stanley Research were prepared by Mogan Staley & Co. Lit, at Morgan Staley C.T.V.M. S.A., and/or Mogan Stanley Mexico, Casa de Boise, S.A. de C.V., and/or Morgan Stanley Canada Limited. As used it this &closure section, "Morgan Stanley" includes Masan Staley & Co. LLC. Morgan Stanley C.T.V.M. S.A., Morgan Stanley Mexico, Casa de Bdsa, S.A. de C.V., Morgan Staley Canada Limited aid their affiliates as necessary. For important dsclosures, stock price charts and equity rating histories regarding companies that are the subject d this report, please see the Masan Stanley Research Disclosure Website at www.morganstarley.cernfresearctrisclosures, a contact yar inv3stment representatiw3 or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management). New Yak, NY, 10036 USA. 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Global Research Conflict Management Policy Masan Stanley Research has been published in accordance with cur cordict management policy, vtich is available at wwamaganstanley.conVinstitutionVresearchlcallictalicies. Important US Regulatory Disclosures on Subject Companies As of April 30, 2015. Morgan Stanley beneficially aimed 1% or more cf a dass of common equity securities of the (Wowing ccmpanies cowed in Morgan Stanley Research: AlaTIC03 Shipping Caperatien, Costamare Inc. Diana Shipping Inc., Dynagas LNG Partners, GasLcg Partners LP. Golar LNG Limited. Geier LNG Partners LP, Nairn Maritime Partners LP, Nordic American Tanker Slipping Ltd., Safe Bakers, Scorpio Tankers Inc., Teekay Tankers Ltd. Within the last 12 months. Morgan Stanley managed a co -managed a attic casing (or 144A offering) of securities d Dynagas LNG Partners. Euronv NV, GasLog Ltd, GasLog Partners LP. Goer LNG Limited Golar LNG Partners LP, Hoar LNG Partners LP, Safe Bilkers, Star Bulk Caniers Corp. Teekay Takers Ltd., Tsakos Energy Navigation LTD. Within the last 12 months. Morgan Stanley has received compensation for irsestment banking senices from Costamare Inc. Dynagas LNG Partners Euronav NV. GasLog Ltd, GasLog Partners LP. Goer LNG United, Golar LNG Partners LP, Hcegh LNG Partners LP, Nordic American Tanker Slipping Ltd., Safe Bullies, Star Bilk Carriers Corp. Teekay Talkers Ltd., Tsakos Energy Navgation LTD. In the next 3 months, Mogan Stanley expects to recehe a intends to seek compensation for investment banking services from Ardmore Shipping Corporation, Baltic Tracing United, Bar Ships Inc. Costamare Inc. Diana Slipping Inc., Dry Ships Inc., Euronav NV, Ratline Ltd, GasLog Ltd, Cola' LNG Limited, Gala LNG Partners LP, Golden Ocean Group Ltd, Nordic American Tanker Slipping Ltd.. Safe &Akers. Scorpio Tankers Inc., Slip Finance homeland Ltd, Star Bulk Carriers Cap, Teekay Corporation, Teekay LNG Partners LP. Teekay Tankers Ltd., Tsakos Energy NaVgation LTD. Within the last 12 morths. Morgan Stanley has received compensation for products and services other than irnestment tanking services from Frontline Ltd, Teekay Corporation. Within the last 12 months. Morgan Stanley has plaided or is providing irsestment barking sonless to, or has an imestment banking client relationship with, the following company: Ardmore Shipping Cap:ration, Baltic Trading United, Box Ships Inc. Costamare Inc. Dana Shipping Inc., Dy Ships Inc., Dynagas LNG Partners, EuronavNV. Frortline Ltd, GasLog Ltd, GasLog Partners LP, Geier LNG Limited, Gofer LNG Partners LP, Golden Ocean Group Ltd, lioegh LNG Partners LP. Nordic American Tanker Slipping Ltd., Safe Bulkers, Scorpio Tankers Inc.. Ship Finance International Ltd, Star Bilk Carriers Corp, Teekay Corporation, Teekay LNG Partners LP, Teekay Talkers Ltd., Tsakos Energy Navigation LTD. Within the last 12 months. Masan Stanley has either pwded or is praiding ron.irsestmeit banking, securities-related sonless to and/or in the past has entered into an agree men to snide sates or has a client relationship with the blowing company: Dana Slipping Inc., Dry Ships Inc., Euraiav6M, Frontline Ltd, Safe Bilkers. Teekay Corporation. Tsakos Energy Nesigation LTD. An employee, Breda or consultant of Masan Stanley is a director of Costamare Inc. This person is not a research analyst a a member of a research analyst's househdd Masan Staley & Co. LLC makes a market in the securities d Ardmaa Shipping Corporation, Baltic Tracing Unreal, Costamare Inc, Dare Slipping Ire., Dy Slips Inc., Dynagas LNG Partners GasLcg Ltd, Gala LNG United, Golar LNG Partners LP, Golden Ocean Grow Ltd, Navies Maritime Partners LP, Nordic American Tanker Shipping Ltd., Safe Bikers, Scorpio Tankers Inc., Ship Finance International Ltd, Teekay Corperation, Teekay LNG Partners LP, Teekay Tankers Ltd. Tsakos Energy NaVgatien LTD. 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To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy reccmmendatien; we contemner Equalmeight and Nct-Pated to hold and Undenveight to sell reccrnmendations, respectively. 10 EFTA01098735 Morgan Stanley Dynagas LNG Partners I May 17. 2015 MORGAN STANLEY RESEARCH 35 90 25 20 15 10 5 0 05/01 05/01 20 2 2013 Stock Rating History: 5/1/12 i NA/C7 12/9/13 : E/C; 12/13/13 S E/I Price Target History: 12/9/13 : 21.5; 2/20/14 : 23; 8/6/14 : 26; 11/5/14 : 24 COVERAGE UNIVERSE INVESTMENT BANKING CLIENTS (IBC) STOCK RATING CATEGORY COUNT % OF TOTAL COUNT % OF TOTAL % OF RATING IBC CATEGORY Overweight/Buy 1166 35% 324 43% 28% Equal-weight/Hold 1449 44% 336 45% 23% Not-RatedlHold 102 3% 12 2% 12% Underweight/Sell 614 18% 78 10% 13% TOTAL 3,331 750 Data include carrion stock and ADFts currealy assigned ratings. knestmest Banking Clients are calvaries from wricm Morgan Stanley receded inuastment barking compensation in the last 12 months. Analyst Stock Ratings aerwaiat (O). The stock's total retim is expected to exceed the mirage total return of the analysts industry (a industry team's) ccnerage urnarse, on a risk-adjusted basis, ow the next 12.18 maths. Equalweight (E). The stock's total raum is expected to be in line with the menage total return of the analysts industry (a industry team's) cow/age unnerse, cn a risk-adusted basis. oar the next 12-18 maths. Not-Rated (MR). Currently the analyst does not hee adequate canictico about the stock's total return relativa to the avarage total return of the analysts industry (a industry team's) =wage unnerse, on a riskadusted basis. oar the next 12-18 maths. Undenveight (U). The stock's total ream is expected to be below the asap total return of the analysts industry (a industry team's) caarage urherse. on a risk-adusted basis, as the next 12-18 months. Unless otherwise specified. the time frame for price targets included in Mogan Stanley Research is 12 to 18 'rraafc. Analyst Industry Views Attractne (A). The arialyst expects the perk:mance Cl his or her industry merest unnerse cner the next 12-18 months to be attractiva ',s. the relevant broad market benchmark. as indcated below. In-Line (I): Its analyst expects the performance of his a. her industry coverage winerse ova the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below. Callous (C): The analyst yaws the periormance of his a. her industry coverage universe ear the next 12-18 months with caution ,.s. the releant broad market benchmark, as indicated below. Benchmarks la each region are as talons: North America • S&P 506. Latin America releent MSCI country index a MSCI Latin America Index; Estee - MSO Europe; Japan - TCP9( Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. Stock Price, Price Target and Rating History (See Rating Definitions) Dynagas LNG Partners (DLNG.N) - As of 5/16/15 in 0S0 Industry : Maritime Industries 5/01 2014 Source: Morgan Stanley Research Date Format: 1410/DO/YY Price Target—. No Price Target Assigned (NA) Stock Price (NotCoveredbyCurrent Analyst) Stock Price (CoveredbyCurrentAnalyst) en Stock and Industry Ratings(abbreviations below) appear as 4 Stock Patine/Industry View Stock Ratings: Overweight(0) Equal-weight(E) Underweight(U) Not-Rated (NR) No Rating Available (NA) Industry View: Attractive (A) In-line (I) Cautious (C) No Rating (NR) Effective January 13. 2014, the stocks covered by Horgan Stanley Asia Pacific will be rated relative to the analyst's industry (or industry team's) coverage. Effective January 13. 2014. the industry view benchmarks for Morgan Stanley Asia Pacific are as follows: relevant MSCI country index or MSCI sub-regional index or MSC' AC Asia Pacific ex Japan Index. 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INDUSTRY COVERAGE: Maritime Indushies COMPANY(TICKER) ROIWG(AS OF) PRICE' (05/15/2015) Glannakoulla Fah Ardmore Shipping Corporation (ASC.N) 0(06126/2013) $12.53 Baltic Trading limited (BALT.N) E(02/26/2012) $1.50 Box Ships Int (TEO.N) U (01/10/2014) $0.94 Costamare Irc (OMEN) 0(02/26/2012) $20.03 Diana Shipping Inc. (DSXN) E (02/24/2015) $7.23 Dry Ships Art (DRVS.0) U (02/26/2012) 50.78 Osnagas LNG Paters (DING.N) E(1210912013) $20.24 Euratavh11/(EURN.N) 0(02/17/2015) $14.22 Frontline Ltd (FRON) U0(02 (10/29/2012) /20/2014) 52.80 GasLog Ltd $21.54 GasLog Partners LP GLCGN) (GLOP.N) 0(0602/2014) $26.43 Gclar LNGUrnited (CONGO) 0(02/26/2012) $48.30 Gila LNGPanners LP(CM.P.0) E(02/2012014) $27.98 Golden Ocean Group Ltd (G03_0) E (04/25/2014) 55.15 Hoegh LNG Partners LP (HNLPN) E (0902/2014) $21.10 Nargaior Holcings Ltd (M.GSN) E (12/16/2013) $21.64 halos Maritime Partners LP (MAIN) U (11/03f2014) $10.98 Nordic Arnencan Tanker Shipping Ltd. (NAT.N) E (1020/2012) $12.45 Safe Bilkers (SB.N) 0(12/13/2013) 53.71 Scorpio Tankers Inc. (STNGN) E(08/2&2013) 59.50 Sip Finance International Ltd (SFL.N) E (12/03/2013) $15.70 Star Bulk Caters Corp (S6LKO) E (03107/2014) 53.48 TeekayCorporation(TICN) E (02/2612012) $47.58 TeekayLNG Partners LP(TORN) E(12/06/2010) $36.75 Teekay Tankers Ltd. (TNICN) E(12,052014) 56.54 Tsakos Energy Navigation LTD (TNP.N) 0(00/20/2014) 59.50 Stock Ratings are sutlect to change. Please see latest research for each company. • listaical prices are not spit adjusted. C 2015 Morgan Stanley 13 EFTA01098738