Edgar Filing: Hoegh LNG Partners LP

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, 2017

Commission File Number 001-36588

Höegh LNG Partners LP

(Translation of registrant’s name into English)

Wessex House, 5 ^thFloor

45 Reid Street

Hamilton, HM 12 Bermuda

(Address of principal executive office)

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

Form 20-F x Form 40-F ¨

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

Yes ¨ No x

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

Yes ¨ No x

HÖEGH LNG PARTNERS LP

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

Table of Contents

	Page

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3

FORWARD LOOKING STATEMENTS	29

INDEX TO FINANCIAL STATEMENTS	F-1

Unaudited Condensed Interim Consolidated Statements of Income for the Three Months And Six Months Ended June 30, 2017 and 2016	F-2

Unaudited Condensed Interim Consolidated Statements of Comprehensive Income for the Three Months And Six Months Ended June 30, 2017 and 2016	F-3

Unaudited Condensed Interim Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	F-4

Unaudited Condensed Interim Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2017 and the Year Ended December 31, 2016	F-6

Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2017 and 2016	F-7

Notes to Unaudited Condensed Interim Consolidated Financial Statements	F-9

EXHIBITS

SIGNATURE

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, 2017 and 2016. 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 “Höegh Lampung” refer to Hoegh LNG Lampung Pte Ltd., a wholly owned subsidiary of our operating company. References in this report to “Höegh FSRU III” refer to Höegh LNG FSRU III Ltd., a wholly owned subsidiary of our operating company. References in this report to “Höegh Cyprus” refer to Hoegh LNG Cyprus Limited including its wholly owned branch, Hoegh LNG Cyprus Limited Egypt Branch (“Egypt Branch”), a wholly owned subsidiary of Höegh FSRU III 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 51% 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 GDF Suez Cape Ann, respectively. References in this report to “GDF Suez” refer to GDF Suez LNG Supply S.A., a subsidiary of ENGIE. References in this Report to “PGN LNG” refer to PT PGN LNG Indonesia, a subsidiary of PT Perusahaan Gas Negara (Persero) Tbk (“PGN”). References in this report to “SPEC” refer to Sociedad Portuaria El Cayao S.A. E.S.P.

References in this report to “Höegh LNG” refer, depending on the context, to Höegh LNG Holdings Ltd. and to any one or more of its direct and indirect subsidiaries, other than us. References in this Report to “EgyptCo” refer to Höegh LNG Egypt LLC, a wholly owned subsidiary of Höegh LNG.

You should read this section in conjunction with the unaudited condensed interim consolidated financial statements as of and for the periods ended June 30, 2017 and 2016 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 6, 2017. 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

Reported total time charter revenues of $35.0 million for the second quarter of 2017 compared to $22.8 million of time charter revenues for the second quarter of 2016

Generated operating income of $23.1 million, net income of $12.2 million and partners' interest in net income of $9.4 million for the second quarter of 2017 compared to operating income of $11.3 million, net income of $4.1 million and partners' interest in net income of $4.1 million for the second quarter of 2016; operating income, net income and partners' interest in net income were impacted by unrealized gains and losses on derivative instruments mainly on the Partnership's share of equity in earnings (losses) of joint ventures in the second quarter of 2017 and 2016

On August 14, 2017, paid a $0.43 per unit distribution with respect to the second quarter of 2017, equivalent to $1.72 per unit on an annualized basis

On August 24, 2017, announced our subsidiary had entered into a term-sheet to acquire an additional 23.5% interest in each of the joint ventures owning the FSRUs Neptune and GDF Suez Cape Ann and 23.5% of the related outstanding shareholder loans.

Our results of operations

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands of U.S. dollars, except per unit amounts)	2017			2016			2017			2016
Statement of Income Data:
Time charter revenues	$	35,024			22,785			70,101		$	44,454
Total revenues		35,024			22,785			70,101			44,454
Vessel operating expenses		(5,628	)		(4,252	)		(11,805	)		(8,034	)
Construction contract expenses		(151	)		(315	)		(151	)		(315	)
Administrative expenses		(2,465	)		(2,395	)		(5,222	)		(4,700	)
Depreciation and amortization		(5,263	)		(2,636	)		(10,526	)		(5,265	)
Total operating expenses		(13,507	)		(9,598	)		(27,704	)		(18,314	)
Equity in earnings (losses) of joint ventures		1,551			(1,866	)		6,360			(8,575	)
Operating income (loss)		23,068			11,321			48,757			17,565
Interest income		113			232			243			505
Interest expense		(7,752	)		(6,354	)		(15,488	)		(12,760	)
Gain (loss) on derivative instruments		247			326			910			662
Other items, net		(1,422	)		(962	)		(2,224	)		(2,001	)
Income (loss) before tax		14,254			4,563			32,198			3,971
Income tax expense		(2,042	)		(501	)		(3,797	)		(949	)
Net income (loss)	$	12,212			4,062			28,401		$	3,022
Non-controlling interest in net income		2,812			—			5,556			—
Partners’ interest in net income (loss)	$	9,400			4,062			22,845		$	3,022

Earnings per unit
Common unit public (basic and diluted)	$	0.28		$	0.15		$	0.68		$	0.11
Common unit Höegh LNG (basic and diluted)	$	0.30		$	0.16		$	0.71		$	0.12
Subordinated unit (basic and diluted)	$	0.30		$	0.16		$	0.71		$	0.12
Cash Flow Data:
Net cash provided by (used in) operating activities	$	15,178		$	7,493		$	34,755		$	19,436
Net cash provided by (used in) investing activities		446			2,788			5,057			4,994
Net cash provided by (used in) financing activities	$	(18,939	)	$	(18,566	)	$	(43,275	)	$	(39,292	)
Other Financial Data:
Segment EBITDA(1)	$	29,598		$	24,294		$	59,052		$	48,421

(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

Six Months ended June 30, 2017 Compared with the Six Months ended June 30, 2016

Time Charter Revenues. The following table sets forth details of our time charter revenues for the six months ended June 30, 2017 and 2016:

					Positive
	Six months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Time charter revenues	$	70,101	$	44,454	$	25,647

Time charter revenues for the six months ended June 30, 2017 were $70.1 million, an increase of $25.6 million from the six months ended June 30, 2016. The increase mainly relates to the revenue for the Höegh Grace, which was consolidated on January 1, 2017. Excluding the revenue for the Höegh Grace, time charter revenues increased by $0.2 million mainly due to higher time charter revenue for the Höegh Gallant in the six months ended June 30, 2017. The Höegh Gallant had 8 days of scheduled maintenance and several days of reduced hire for the first six months ended June 30, 2017. During the first six months of 2016, the Höegh Gallant incurred 15 days of off-hire due to scheduled maintenance and reduced hire equivalent to approximately two days of off-hire.

Time charter revenues for the PGN FSRU Lampung consist of the lease element of the time charter, accounted for as a direct financing lease using the effective interest rate method, as well as fees for providing time charter services, reimbursement for vessel operating expenses 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. Time charter revenues for the Höegh Grace consist of a lease element accounted for as an operating lease, as well as fees for providing time charter services, reimbursement of vessel operating expenses and certain taxes incurred.

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the six months ended June 30, 2017 and 2016:

							Positive
	Six months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Vessel operating expenses	$	(11,805	)	$	(8,034	)	$	(3,771	)

Vessel operating expenses for the six months ended June 30, 2017 were $11.8 million, an increase of $3.8 million from the six months ended June 30, 2016. The increase reflects approximately $3.6 million of higher vessel operating expenses due to the inclusion of the Höegh Grace and $0.2 million in higher operating expenses for the Höegh Gallant and the PGN FSRU Lampung.

Construction Contract Expenses. The following table sets forth details of our construction contract expenses for the six months ended June 30, 2017 and 2016:

							Positive
	Six months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Construction contract expenses	$	(151	)	$	(315	)	$	164

Construction contract expenses relate to an offshore installation that is used to moor the PGN FSRU Lampung to offload natural gas into an offshore pipe that transports the gas to a land terminal for the charterer, PGN LNG (the “Mooring”). The Mooring was constructed on behalf of, and was sold to, PGN LNG and was accounted for using the percentage of completion method. Under the percentage of completion method, construction contract revenues and expenses of the Mooring were reflected in the consolidated and combined carve-out statements of income until December 31, 2014 when the Mooring project was completed. As of December 31, 2014, the Partnership recorded a warranty allowance of $2.0 million for technical issues that required the replacement of equipment parts for the Mooring. During the second quarter of 2016, the final replacement parts were ordered and an updated estimate was prepared for the installation cost to complete the warranty replacements. As a result, an additional warranty provision of $0.3 million was recorded as of June 30, 2016. The warranty work, including the installation of the replacement parts, was completed during second quarter of 2017, and the final cost exceeded the remaining warranty allowance. As a result additional construction contract expense of $0.2 million was recorded as of June 30, 2017.

We anticipate that part of the costs incurred, net of deductible amounts, will be recoverable under our insurance coverage. An insurance claim is in the process of being filed with the insurance carrier since the final costs have been incurred. The insurance claims can only be recognized in the consolidated financial statements when the claims submitted are probable of recovery. We are indemnified by Höegh LNG for all warranty provisions, subject to repayment to the extent recovered by insurance.

Administrative Expenses. The following table sets forth details of our administrative expenses for the six months ended June 30, 2017 and 2016:

							Positive
	Six months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Administrative expenses	$	(5,222	)	$	(4,700	)	$	(522	)

Administrative expenses for the six months ended June 30, 2017 were $5.2 million, an increase of $0.5 million from $4.7 million for the six months ended June 30, 2016. The main reason for the increase was $0.6 million in additional administrative expenses related to the Höegh Grace which were not included for the corresponding period of 2016.

Depreciation and Amortization. The following table sets forth details of our depreciation and amortization for the six months ended June 30, 2017 and 2016:

							Positive
	Six months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Depreciation and amortization	$	(10,526	)	$	(5,265	)	$	(5,261	)

Depreciation and amortization for the six months ended June 30, 2017 was $10.5 million, an increase of $5.3 million compared to the six months ended June 30, 2016. The increase was due to the inclusion of the depreciation expense of the Höegh Grace for the six months ended June 30, 2017 as a result of the acquisition.

Total Operating Expenses. The following table sets forth details of our total operating expenses for the six months ended June 30, 2017 and 2016:

							Positive
	Six months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Total operating expenses	$	(27,704	)	$	(18,314	)	$	(9,390	)

Total operating expenses for the six months ended June 30, 2017 were $27.7 million, an increase of $9.4 million from $18.3 million for the six months ended June 30, 2016. The increase is mainly due to the additional vessel operating expenses and depreciation in the six months ended June 30, 2017 as a result of acquiring the Höegh Grace.

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, 2017 and 2016:

						Positive
	Six months ended June 30,					(negative)
(in thousands of U.S. dollars)	2017		2016			variance
Equity in earnings (losses) of joint ventures	$	6,360	$	(8,575	)	$	14,935

Equity in earnings of joint ventures for the six months ended June 30, 2017 was $6.4 million, an increase of $14.9 million from equity in losses of joint ventures of $8.6 million for the six months ended June 30, 2016. Unrealized gains and losses on derivative instruments in our joint ventures significantly impacted the equity in earnings (losses) of joint ventures for the six months ended June 30, 2017 and 2016. The reason for the loss for the six months ended June 30, 2016 was an unrealized loss on derivative instruments in our joint ventures. By comparison, the equity in earnings of joint ventures for the six months ended June 30, 2017 was impacted by an unrealized gain on derivative instruments.

Our share of our joint ventures’ operating income was $11.6 million for the six months ended June 30, 2017, compared with $12.3 million for the six months ended June 30, 2016. Our share of other income (expense), net, principally consisting of interest expense, was $7.0 million for the six months ended June 30, 2017, a decrease of $0.7 million from $7.7 million for the six months ended June 30, 2016.

Our share of unrealized gain on derivative instruments was $1.7 million for the six months ended June 30, 2017, an increase of $14.9 million from unrealized loss of $13.2 million for the six months ended June 30, 2016.

There was no accrued income tax expense for the six months ended June 30, 2017 and 2016. Our joint ventures did not pay any dividends for the six months ended June 30, 2017 and 2016.

Operating Income (Loss). The following table sets forth details of our operating income (loss) for the six months ended June 30, 2017 and 2016:

					Positive
	Six months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Operating income (loss)	$	48,757	$	17,565	$	31,192

Operating income for the six months ended June 30, 2017 was $48.8 million, an increase of $31.2 million from operating income of $17.6 million for the six months ended June 30, 2016. Excluding the impact of the unrealized gains (losses) on derivatives for the six months ended June 30, 2017 and 2016 impacting the equity in earnings (losses) of joint ventures, operating income for the six months ended June 30, 2017 would have been $47.0 million, an increase of $16.3 million from $30.7 million for the six months ended June 30, 2016. The increase for the six months ended June 30, 2017 is primarily due to the inclusion of the results of the Höegh Grace consolidated on January 1, 2017.

Interest Income. The following table sets forth details of our interest income for the six months ended June 30, 2017 and 2016:

					Positive
	Six months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Interest income	$	243	$	505	$	(262	)

Interest income for the six months ended June 30, 2017 was $0.2 million, a decrease of $0.3 million from $0.5 million for the six months ended June 30, 2016. Interest income is mainly related to interest accrued on the advances to our joint ventures for the six months ended June 30, 2017 and 2016, respectively. The decrease in interest income from joint ventures is due to repayment by our joint ventures of the amounts due under the shareholder loans between the periods. The interest rate under the 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, 2017 and 2016:

							Positive
	Six months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Interest expense	$	(14,561	)	$	(11,115	)	$	(3,446	)
Commitment fees		(504	)		(602	)		98
Amortization of debt issuance cost and fair value of debt assumed		(423	)		(1,043	)		620
Total interest expense	$	(15,488	)	$	(12,760	)	$	(2,728	)

Interest expense for the six months ended June 30, 2017 was $15.5 million, an increase of $2.7 million from $12.8 million for the six months ended June 30, 2016. Interest expense consists of the interest incurred, commitment fees and amortization of debt issuance cost and fair value of debt assumed for the period.

The interest incurred of $14.6 million for the six months ended June 30, 2017, increased by $3.5 million compared to $11.1 million for the six months ended June 30, 2016, principally due to higher outstanding loan balances. On January 3, 2017, we acquired a 51% ownership interest in Höegh Colombia Holding, the owner of the entities that own and operate the Höegh Grace (the “Höegh Grace entities”) and assumed the long-term loan facility related to the Höegh Grace (the “Grace facility”). In August 2016, November 2016, February 2017 and May 2017, we drew $5.4 million, $3.2 million, $1.6 million and $10.1 million, respectively, on the $85 million revolving credit facility. In connection with the 2015 acquisition of the Höegh Gallant, we financed part of the acquisition with a seller’s credit note. Accordingly, the interest incurred for the six months ended June 30, 2017 included interest for the Lampung, Gallant and Grace facilities and the seller’s credit note and the outstanding balance on the revolving credit facility.

Commitment fees were $0.5 million for the six months ended June 30, 2017, a decrease of $0.1 million for the six months ended June 30, 2016. The commitment fees relate to the undrawn portion of the $85 million revolving credit facility.

Amortization of debt issuance cost and fair value of debt assumed for the six months ended June 30, 2017 was $0.4 million, a decrease of $0.6 million compared to $1.0 million for the six months ended June 30, 2016. As a result of the acquisition of the Höegh Grace, the long term debt assumed under the Grace facility was recognized at its fair value which is amortized to interest expense using the effective interest method. The impact for the six months ended June 30, 2017 was a reduction to interest expense of approximately $0.3 million compared to the corresponding period of 2016.

Gain (Loss) on Derivative Instruments. The following table sets forth details of our gain (loss) on derivative instruments for the six months ended June 30, 2017 and 2016:

					Positive
	Six months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Gain (loss) on derivative instruments	$	910	$	662	$	248

Gain on derivative instruments for the six months ended June 30, 2017 was $0.9 million, an increase of $0.2 million from $0.7 million for the six months ended June 30, 2016. Gain on derivative instruments for the six months ended June 30, 2017 related to the interest rate swaps for the Gallant facility and the Grace facility, partly offset by loss on interest rate swaps on the Lampung facility. The increase is mainly due to amortization of the amount excluded from hedge effectiveness for the Grace facility.

Other Items, Net. The following table sets forth details of our other items, net for the six months ended June 30, 2017 and 2016:

							Positive
	Six months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Foreign exchange gain (loss)	$	(944	)	$	(365	)	$	(579	)
Bank charges, fees and other		(52	)		(91	)		39
Withholding tax on interest expense and other		(1,228	)		(1,545	)		317
Total other items, net	$	(2,224	)	$	(2,001	)	$	(223	)

Other items, net were $2.2 million for the six months ended June 30, 2017, an increase of $0.2 million from $2.0 million for the six months ended June 30, 2016. The increase is mainly due to increased foreign exchange loss partly offset by reduced withholding tax expenses.

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the six months ended June 30, 2017 and 2016:

					Positive
	Six months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Income (loss) before tax	$	32,198	$	3,971	$	28,227

Income before tax for the six months ended June 30, 2017 was $32.2 million, an increase of $28.2 million from $4.0 million for the six months ended June 30, 2016. The income before tax for both periods was impacted by unrealized gains (losses) on derivative instruments mainly on the Partnership’s share of equity in earnings (losses) of joint ventures. Excluding all the unrealized gains (losses) on derivative instruments, income before tax for the six months ended June 30, 2017 was $29.6 million, an increase of $13.1 million from $16.5 million for the six months ended June 30, 2016. Excluding the unrealized gain (loss) on derivative instruments, the increase is primarily due to the inclusion of the results of the Höegh Grace.

Income Tax Expense. The following table sets forth details of our income tax expense for the six months ended June 30, 2017 and 2016:

							Positive
	Six months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Income tax expense	$	(3,797	)	$	(949	)	$	(2,848	)

Income tax expense for the six months ended June 30, 2017 was $3.8 million, an increase of $2.9 million compared to $0.9 million for the six months ended June 30, 2016. We are not subject to Marshall Islands income taxes. However, we are subject to tax for earnings of our subsidiaries incorporated in Singapore, Indonesia, Colombia, Cyprus and the UK and certain Colombian source income. For the six months ended June 30, 2017, the income tax expense largely related to the subsidiaries in Indonesia, Colombia and Singapore. The income tax expense for the six months ended June 30, 2016 mainly related to the subsidiaries in Singapore and Indonesia. The Singapore subsidiary’s taxable income mainly arises from internal interest income. The charterer in Colombia pays certain taxes directly to the Colombian tax authorities on behalf of the Partnership’s subsidiaries that own and operate the Höegh Grace. The tax payments are a mechanism for advance collection of income taxes for the Colombian subsidiary and a final income tax on Colombian source income for the non-Colombian subsidiary. We concluded these third party payments to the tax authorities represent income taxes that must be accounted for under the US GAAP guidance for income taxes. The amount of non-cash income tax expense was $0.4 million for the six-months ended June 30, 2017.

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, 2017, the estimated generation of taxable income resulted in the utilization of $0.2 million of tax loss carryforward in Indonesia which was not recognized due to the uncertainty of this tax position. As a result, a long-term income tax payable of $0.2 million was recorded for the uncertain tax position.

Net Income (Loss). The following table sets forth details of our net income (loss) for the six months ended June 30, 2017 and 2016:

					Positive
	Six months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Net income (loss)	$	28,401	$	3,022	$	25,379
Non-controlling interest in net income		5,556		—		5,556
Partners’ interest in net income (loss)	$	22,845	$	3,022	$	19,823

As a result of the foregoing, net income for the six months ended June 30, 2017 was $28.4 million, an increase of $25.4 million from net income of $3.0 million for the six months ended June 30, 2016. Net income of $5.6 million was attributable to non-controlling interest for the 49% interest in the Höegh Grace entities not owned by the Partnership. The Partners’ interest in net income, which includes the Partnership’s 51% interest in the Höegh Grace entities, for the six months ended June 30, 2017 was $22.8 million, an increase of $19.8 million from net income of $3.0 million for the six months ended June 30, 2016.

Segments

There are two operating segments. The segment profit measure is Segment EBITDA, which is defined as earnings before interest, taxes, depreciation, amortization and other financial items (gains and losses on derivative instruments and other items, net) less the non-controlling interest in Segment EBITDA. 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 that are considered to benefit the entire organization, interest income from advances to joint ventures and interest expense related to the seller’s credit note and the outstanding balance on the $85 million revolving credit facility are included in “Other.”

For the six months ended June 30, 2017, Majority held FSRUs includes the direct financing lease related to the PGN FSRU Lampung, the operating leases related to the Höegh Gallant and the Höegh Grace. For the six months ended June 30, 2016, Majority held FSRUs includes only the direct financing lease related to the PGN FSRU Lampung and the operating lease related to the Höegh Gallant.

As of June 30, 2017 and 2016, Joint venture FSRUs include two 50% owned FSRUs, the Neptune and the GDF Suez 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) non-controlling interest in Segment EBITDA is subtracted in the segment note and the tables below to reflect the Partnership’s interest in Segment EBITDA as the Partnership’s segment profit measure, Segment EBITDA. 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. On January 1, 2017, the Partnership began consolidating its acquired 51% interest in the Höegh Grace entities. Since the Partnership obtained control of the Höegh Grace entities, it consolidates 100% of the revenues, expenses, assets and liabilities of the Höegh Grace entities and the interest not owned by the Partnership is reflected as non-controlling interest in net income and non-controlling interest in total equity under US GAAP. Management monitors the results of operations of the Höegh Grace entities based on the Partnership’s 51% interest in Segment EBITDA of such entities and, therefore, subtracts the non-controlling interest in Segment EBITDA to present Segment EBITDA. The adjustment to non-controlling interest in Segment EBITDA is reversed to reconcile to operating income and net income in the segment presentation below. The following tables include the results for the segments for the six months ended June 30, 2017 and 2016.

Majority held FSRUs. The following table sets forth details of segment results for the Majority held FSRUs for the six months ended June 30, 2017 and 2016:

	Six months ended						Positive
Majority held FSRUs	June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Time charter revenues	$	70,101		$	44,454		$	25,647
Total revenues		70,101			44,454			25,647
Vessel operating expenses		(11,805	)		(8,034	)		(3,771	)
Construction contract expense		(151	)		(315	)		164
Administrative expenses		(2,150	)		(1,671	)		(479	)
Less: Non-controlling interest in Segment EBITDA		(10,417	)		—			(10,417	)
Segment EBITDA		45,578			34,434			11,144
Add: Non-controlling interest in Segment EBITDA		10,417			—			10,417
Depreciation and amortization		(10,526	)		(5,265	)		(5,261	)
Operating income (loss)		45,469			29,169			16,300
Gain (loss) on derivative instruments		910			662			248
Other financial income (expense), net		(15,483	)		(12,220	)		(3,263	)
Income (loss) before tax		30,896			17,611			13,285
Income tax expense		(3,797	)		(946	)		(2,851	)
Net income (loss)	$	27,099		$	16,665		$	10,434
Non-controlling interest in net income		5,556			—			5,556
Partners’ interest in net income (loss)	$	21,543		$	16,665		$	4,878

The segment time charter revenues and all the expenses, gains and losses include 100% of the results of the Höegh Grace entities which is consistent with our consolidated income statement. However, Segment EBITDA is reduced for non-controlling interest in Segment EBITDA in the Höegh Grace entities to reflect our 51% interest in the Höegh Grace entities.

Time charter revenues for the six months ended June 30, 2017 were $70.1 million, an increase of $25.6 million from the six months ended June 30, 2016. As discussed in more detail above, the main reason for higher time charter revenues was the inclusion of the Höegh Grace from January 1, 2017. In addition, the Höegh Gallant had fewer days offhire. The PGN FSRU Lampung and the Höegh Grace were on-hire for the entire first half of 2017.

Vessel operating expenses for the six months ended June 30, 2017 were $11.8 million compared to $8.0 million for the six months ended June 30, 2016. The increase reflects approximately $3.6 million higher vessel operating expenses due to the inclusion of the Höegh Grace and $0.2 million in higher operating expenses for the Höegh Gallant and the PGN FSRU Lampung.

Construction contract expenses were $0.2 million and $0.3 million for the six months ended June 30, 2017 and 2016, respectively. As discussed in more detail above, the expenses were for installation of replacement parts under a warranty related to the Mooring.

Administrative expenses for the six months ended June 30, 2017 were $2.2 million, an increase of $0.5 million from $1.7 million for the six months ended June 30, 2016. Higher expenses in the three months ended June 30, 2017 were mainly due to activities associated with the Höegh Grace consolidated as of January 1, 2017.

Segment EBITDA for the six months ended June 30, 2017 was $45.6 million, an increase of $11.2 million from $34.4 million for the six months ended June 30, 2016 mainly due to our 51% interest in the contribution from the operations of the Höegh Grace. However, the contribution from the PGN FSRU Lampung and the Höegh Gallant also improved the Segment EBITDA for the six months ended June 30, 2017 compared with the corresponding period of 2016.

Joint venture FSRUs. The following table sets forth details of segment results for the Joint venture FSRUs for the six months ended June 30, 2017 and 2016:

	Six months ended						Positive
Joint venture FSRUs	June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Time charter revenues	$	21,149		$	21,117		$	32
Vessel operating expenses		(4,231	)		(3,610	)		(621	)
Administrative expenses		(372	)		(491	)		119
Segment EBITDA		16,546			17,016			(470	)
Depreciation and amortization		(4,916	)		(4,755	)		(161	)
Operating income (loss)		11,630			12,261			(631	)
Gain (loss) on derivative instruments		1,711			(13,166	)		14,877
Other income (expense), net		(6,981	)		(7,670	)		689
Income (loss) before tax		6,360			(8,575	)		14,935
Income tax expense		—			—			—
Net income (loss)	$	6,360		$	(8,575	)	$	14,935

The segment results for the Joint venture FSRUs are presented using the proportional consolidation method (which differs from the equity method used in the historical unaudited condensed interim consolidated financial statements).

Total time charter revenues were $21.1 million for each of the six months ended June 30, 2017 and 2016. Higher time charter revenues for the three months ended March 31, 2017 for reimbursements of costs incurred for the Neptune for operation in Turkey were largely offset by lower revenues for the three months ended June 30, 2017 for recovery of costs incurred in Turkey.

Vessel operating expenses were $4.2 million for the six months ended June 30, 2017, an increase of $0.6 million compared to $3.6 million for the six months ended June 30, 2016. The increase in vessel operating expenses was largely due to costs related to the operations in Turkey in the six months ended June 30, 2017.

Administrative expenses were $0.4 million for the six months ended June 30, 2017, compared to $0.5 million for the six months ended June 30, 2016.

Segment EBITDA was $16.5 million for the six months ended June 30, 2017 compared with $17.0 million for the six months ended June 30, 2016.

Other. The following table sets forth details of other results for the six months ended June 30, 2017 and 2016:

	Six months ended						Positive
Other	June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Administrative expenses	$	(3,072	)	$	(3,029	)	$	(43	)
Segment EBITDA		(3,072	)		(3,029	)		(43	)
Operating income (loss)		(3,072	)		(3,029	)		(43	)
Other financial income (expense), net		(1,986	)		(2,036	)		50
Income (loss) before tax		(5,058	)		(5,065	)		7
Income tax expense		—			(3	)		3
Net income (loss)	$	(5,058	)	$	(5,068	)	$	10

Administrative expenses and Segment EBITDA for the six months ended June 30, 2017 were $3.1 million, an increase of $0.1 million from $3.0 million for the six months ended June 30, 2016.

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 on a seller’s credit note issued in connection with the acquisition of Höegh Gallant and the $85 million revolving credit facility.

Other financial income (expense), net was an expense of $2.0 million for each of the six months ended June 30, 2017 and 2016.

Three Months Ended June 30, 2017 Compared with the Three Months Ended June 30, 2016

Time Charter Revenues. The following table sets forth details of our time charter revenues for the three months ended June 30, 2017 and 2016:

					Positive
	Three months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Time charter revenues	$	35,024	$	22,785	$	12,239

Time charter revenues for the three months ended June 30, 2017 were $35.0 million, an increase of $12.2 million from the three months ended June 30, 2016. The increase mainly relates to the revenue for the Höegh Grace, which was consolidated on January 1, 2017. This was offset by $0.8 million lower time charter revenue for the PGN FSRU Lampung and the Höegh Gallant mainly due to 8 days scheduled maintenance in the second quarter of 2017 for the Höegh Gallant.

Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the three months ended June 30, 2017 and 2016:

							Positive
	Three months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Vessel operating expenses	$	(5,628	)	$	(4,252	)	$	(1,376	)

Vessel operating expenses for the three months ended June 30, 2017 were $5.6 million, an increase of $1.4 million from the three months ended June 30, 2016. The increase reflects approximately $1.7 million higher vessel operating expenses due to the inclusion of the Höegh Grace and $0.3 million in reduced operating expenses for the Höegh Gallant and the PGN FSRU Lampung.

Construction Contract Expenses. The following table sets forth details of our construction contract expenses for the three months ended June 30, 2017 and 2016:

							Positive
	Three months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Construction contract expenses	$	(151	)	$	(315	)	$	164

As discussed in more detail above, the construction contract expenses were for installation of replacement parts under a warranty related to the Mooring. The construction contract expenses were $0.2 million and $0.3 million for the three months ended June 30, 2017 and 2016, respectively. We anticipate that part of the costs incurred, net of deductible amounts, will be recoverable under our insurance coverage. An insurance claim is in the process of being filed with the insurance carrier since the final costs have been incurred. The insurance claims can only be recognized in the consolidated financial statements when the claims submitted are probable of recovery. We are indemnified by Höegh LNG for all warranty provisions, subject to repayment to the extent recovered by insurance.

Administrative Expenses. The following table sets forth details of our administrative expenses for the three months ended June 30, 2017 and 2016:

							Positive
	Three months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Administrative expenses	$	(2,465	)	$	(2,395	)	$	(70	)

Administrative expenses for the three months ended June 30, 2017 were $2.5 million, an increase of $0.1 million from $2.4 million for the three months ended June 30, 2016. The main reason for the increase was $0.3 million in additional administrative expenses related to the Höegh Grace which were not included for the corresponding period of 2016. This increase was partly offset by lower administrative expenses for the Höegh Gallant, the PGN FSRU Lampung and the Other segment for the three months ended June 30, 2017.

Depreciation and Amortization. The following table sets forth details of our depreciation and amortization for the three months ended June 30, 2017 and 2016:

							Positive
	Three months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Depreciation and amortization	$	(5,263	)	$	(2,636	)	$	(2,627	)

Depreciation and amortization for the three months ended June 30, 2017 was $5.3 million, an increase of $2.6 million compared to the three months ended June 30, 2016. The increase was due to the inclusion of the depreciation of the Höegh Grace in the three months ended June 30, 2017 as a result of the acquisition.

Total Operating Expenses. The following table sets forth details of our total operating expenses for the three months ended June 30, 2017 and 2016:

							Positive
	Three months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Total operating expenses	$	(13,507	)	$	(9,598	)	$	(3,909	)

Total operating expenses for the three months ended June 30, 2017 were $13.5 million, an increase of $3.9 million from $9.6 million for the three months ended June 30, 2016. The increase is mainly due to the additional vessel operating expenses and depreciation in the three months ended June 30, 2017 as a result of acquiring the Höegh Grace, with no comparative expenses for the three months ended June 30, 2016. This was partly offset by $0.6 million in lower operating expenses mainly for the Höegh Gallant and the PGN FSRU Lampung.

Equity in Earnings (Losses) of Joint ventures. The following table sets forth details of our equity in earnings (losses) of joint ventures for the three months ended June 30, 2017 and 2016:

						Positive
	Three months ended June 30,					(negative)
(in thousands of U.S. dollars)	2017		2016			variance
Equity in earnings (losses) of joint ventures	$	1,551	$	(1,866	)	$	3,417

Equity in earnings of joint ventures for the three months ended June 30, 2017 was $1.6 million, an increase of $3.4 million from equity in losses of joint ventures of $1.9 million for the three months ended June 30, 2016. Unrealized losses on derivative instruments in our joint ventures significantly impacted the equity in earnings (losses) of joint ventures for the three months ended June 30, 2017 and 2016.

Our share of our joint ventures’ operating income was $5.8 million for the three months ended June 30, 2017, compared with $6.1 million for the three months ended June 30, 2016. Our share of other expense, net, principally consisting of interest expense, was $3.4 million for the three months ended June 30, 2017, a decrease of $0.4 million from $3.8 million for the three months ended June 30, 2016.

Our share of unrealized losses on derivative instruments was $0.8 million for the three months ended June 30, 2017, a decrease of $3.4 million from unrealized losses of $4.2 million for the three months ended June 30, 2016.

There was no accrued income tax expense for the three months ended June 30, 2017 and 2016. Our joint ventures did not pay any dividends for the three months ended June 30, 2017and 2016.

Operating Income (Loss). The following table sets forth details of our operating income (loss) for the three months ended June 30, 2017and 2016:

					Positive
	Three months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Operating income (loss)	$	23,068	$	11,321	$	11,747

Operating income for the three months ended June 30, 2017 was $23.1 million, an increase of $11.8 million from operating income of $11.3 million for the three months ended June 30, 2016. Excluding the impact of the unrealized gains (losses) on derivatives for the three months ended June 30, 2017 and 2016 impacting the equity in earnings (losses) of joint ventures, operating income for the three months ended June 30, 2017 would have been $23.9 million, an increase of $8.4 million from $15.5 million for the three months ended June 30, 2016. The increase for the three months ended June 30, 2017 is primarily due to the inclusion of the results of the Höegh Grace consolidated on January 1, 2017.

Interest Income. The following table sets forth details of our interest income for the three months ended June 30, 2017 and 2016:

					Positive
	Three months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Interest income	$	113	$	232	$	(119	)

Interest income for the three months ended June 30, 2017 was $0.1 million, a decrease of $0.1 million from $0.2 million for the three months ended June 30, 2016. Interest income is mainly related to interest accrued on the advances to our joint ventures for the three months ended June 30, 2017 and 2016, respectively. The decrease in interest income from joint ventures is due to repayment by our joint ventures of amounts due under the shareholder loans between the periods. The interest rate under the 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 three months ended June 30, 2017 and 2016:

							Positive
	Three months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Interest expense	$	(7,301	)	$	(5,533	)	$	(1,768	)
Commitment fees		(241	)		(301	)		60
Amortization of debt issuance cost and fair value of debt assumed		(210	)		(520	)		310
Total interest expense	$	(7,752	)	$	(6,354	)	$	(1,398	)

Interest expense for the three months ended June 30, 2017 was $7.3 million, an increase of $1.8 million from $5.5 million for the three months ended June 30, 2016. Interest expense consists of the interest incurred, commitment fees and amortization of debt issuance cost and fair value of debt assumed for the period.

The interest incurred of $7.3 million for the three months ended June 30, 2017 increased by $1.8 million compared to $5.5 million for the three months ended June 30, 2016, principally due to higher outstanding loan balances. On January 3, 2017, we acquired the Höegh Grace entities and assumed the long-term loan facility related to the Höegh Grace. In August 2016, November 2016, February 2017 and May 2017, we drew $5.4 million, $3.2 million, $1.6 million and $10.1 million, respectively, on the $85 million revolving credit facility. In connection with the 2015 acquisition of the Höegh Gallant, we financed part of the acquisition with a seller’s credit note. Accordingly, the interest incurred for the three months ended June 30, 2017 included interest for the Lampung, Gallant and Grace facilities, the seller’s credit note and the outstanding balance on the revolving credit facility.

Commitment fees were $0.2 million for the three months ended June 30, 2017, a decrease of $0.1 million for the three months ended June 30, 2016. The commitment fees relate to the undrawn portion of the $85 million revolving credit facility.

Amortization of debt issuance cost and fair value of debt assumed for the three months ended June 30, 2017 was $0.2 million, a decrease of $0.3 million compared to $0.5 million for the three months ended June 30, 2016. As a result of the acquisition of the Höegh Grace, the long term debt assumed under the Grace facility was recognized at its fair value which is amortized to interest expense using the effective interest method. The impact for the three months ended June 30, 2017 was a reduction to interest expense of approximately $0.2 million compared to the corresponding period of 2016.

Gain (Loss) on Derivative Instruments. The following table sets forth details of our gain (loss) on derivative instruments for the three months ended June 30, 2017 and 2016:

					Positive
	Three months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Gain (loss) on derivative instruments	$	247	$	326	$	(79	)

Gain on derivative instruments for the three months ended June 30, 2017 was $0.2 million, a decrease of $0.1 million compared to the three months ended June 30, 2016. The decrease was due to a loss on derivative instruments for the three months ended June 30, 2017 related to the interest rate swaps for the Lampung facility, which was partly offset by gain on derivative instruments for the Gallant facility and the Grace facility, while the gain on derivative instruments for the three months ended June 30, 2016 related to the interest rate swaps for the Gallant and Lampung facility.

Other Items, Net. The following table sets forth details of our other items, net for the three months ended June 30, 2017 and 2016:

							Positive
	Three months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Foreign exchange gain (loss)	$	(811	)	$	(28	)	$	(783	)
Bank charges, fees and other		(29	)		(11	)		(18	)
Withholding tax on interest expense and other		(582	)		(923	)		341
Total other items, net	$	(1,422	)	$	(962	)	$	(460	)

Other items, net for the three months ended June 30, 2017 was $1.4 million, an increase of $0.4 million from $1.0 million for the three months ended June 30, 2016. The increase is mainly due to increased foreign exchange loss partly offset by reduced withholding tax expenses.

Income (Loss) Before Tax. The following table sets forth details of our income (loss) before tax for the three months ended June 30, 2017 and 2016:

					Positive
	Three months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Income (loss) before tax	$	14,254	$	4,565	$	9,689

Income before tax for the three months ended June 30, 2017 was $14.3 million, an increase of $9.7 million from income before tax of $4.6 million for the three months ended June 30, 2016. The income before tax for both periods was impacted by the unrealized gains (losses) on derivative instruments mainly on the Partnership’s share of equity in earnings (losses) of joint ventures. Excluding all the unrealized gains (losses) on derivative instruments, income before tax for the three months ended June 30, 2017 was $14.8 million, an increase of $6.4 million from $8.4 million for the three months ended June 30, 2016. Excluding the unrealized gain (loss) on derivative instruments, the increase is primarily due to the inclusion of the results of the Höegh Grace.

Income Tax Expense. The following table sets forth details of our income tax expense for the three months ended June 30, 2017 and 2016:

							Positive
	Three months ended June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Income tax expense	$	(2,042	)	$	(501	)	$	(1,541	)

Income tax expense for the three months ended June 30, 2017 was $2.0 million, an increase of $1.5 million compared to $0.5 million for the three months ended June 30, 2016. We are not subject to Marshall Islands income taxes. However, we are subject to tax for earnings of our subsidiaries incorporated in Singapore, Indonesia, Colombia, Cyprus and the UK and certain Colombian source income. For the three months ended June 30, 2017 and 2016, the income tax expense largely related to the subsidiaries in Indonesia, Colombia and Singapore. The income tax expense for the three months ended June 30, 2016 mainly related to the subsidiaries in Singapore and Indonesia. The Singapore subsidiary’s taxable income mainly arises from internal interest income. The charterer in Colombia pays certain taxes directly to the Colombian tax authorities on behalf of the Partnership’s subsidiaries that own and operate the Höegh Grace. The tax payments are a mechanism for advance collection of income taxes for the Colombian subsidiary and a final income tax on Colombian source income for the non-Colombian subsidiary. We concluded these third party payments to the tax authorities represent income taxes that must be accounted for under the US GAAP guidance for income taxes. The amount of non-cash income tax expense was $0.4 million for the three months ended June 30, 2017.

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, 2017, the estimated generation of taxable income resulted in the utilization of $0.1 million of tax loss carryforward in Indonesia which was not recognized due to the uncertainty of this tax position. As a result, a long-term income tax payable of $0.1 million was recorded for the uncertain tax position.

Net Income (Loss). The following table sets forth details of our net income (loss) for the three months ended June 30, 2017 and 2016:

					Positive
	Three months ended June 30,				(negative)
(in thousands of U.S. dollars)	2017		2016		variance
Net income (loss)	$	12,212	$	4,062	$	8,150
Non-controlling interest in net income		2,812		—		2,812
Partners’ interest in net income (loss)	$	9,400	$	4,062	$	5,338

As a result of the foregoing, net income for the three months ended June 30, 2017 was $12.2 million, an increase of $8.1 million from net income of $4.1 million for the three months ended June 30, 2016. Net income of $2.8 million was attributable to non-controlling interest for the 49% interest in the Höegh Grace entities not owned by the Partnership. The Partners’ interest in net income, which includes the Partnership’s 51% interest in the Höegh Grace entities, for the three months ended June 30, 2017 was $9.4 million, an increase of $5.3 million from net income of $4.1 million for the three months ended June 30, 2016.

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, 2017 and 2016:

	Three months ended						Positive
Majority held FSRUs	June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Time charter revenues	$	35,024		$	22,785		$	12,239
Total revenues		35,024			22,785			12,239
Vessel operating expenses		(5,628	)		(4,252	)		(1,376	)
Construction contract expense		(151	)		(315	)		164
Administrative expenses		(1,065	)		(871	)		(194	)
Add: Non-controlling interest in Segment EBITDA		(5,423	)		—			(5,423	)
Segment EBITDA		22,757			17,347			5,410
Less: Non-controlling interest in Segment EBITDA		5,423			—			5,423
Depreciation and amortization		(5,263	)		(2,636	)		(2,627	)
Operating income (loss)		22,917			14,711			8,206
Gain (loss) on derivative instruments		247			326			(79	)
Other financial income (expense), net		(8,028	)		(6,048	)		(1,980	)
Income (loss) before tax		15,136			8,989			6,147
Income tax expense		(2,042	)		(500	)		(1,542	)
Net income (loss)		13,094			8,489			4,605
Non-controlling interest in net income		2,812			—			2,812
Partners’ interest in net income (loss)	$	10,282		$	8,489		$	1,793

Time charter revenues for the three months ended June 30, 2017 were $35.0 million, an increase of $12.2 million from the three months ended June 30, 2016. As discussed above, the main reason for higher time charter revenues was the inclusion of the Höegh Grace from January 1, 2017. The increase was partly offset by lower time charter revenues for the PGN FSRU Lampung and the Höegh Gallant mainly as a result of more days offhire due to scheduled maintenance. The PGN FSRU Lampung and the Höegh Grace were on-hire for the entire second quarter of 2017.

Vessel operating expenses for the three months ended June 30, 2017 were $5.6 million compared to $4.3 million for the three months ended June 30, 2016. The increase reflects approximately $1.7 million higher vessel operating expenses due to the inclusion of the Höegh Grace and $0.3 million in reduced operating expenses for the Höegh Gallant and the PGN FSRU Lampung.

Construction contract expenses were $0.2 million for the three months ended June 30, 2017, a decrease of $0.1 million from $0.3 million for the three months ended June 30, 2016. As discussed in more detail above, construction contract expenses related to replacement of equipment parts under the Mooring warranty.

Administrative expenses for the three months ended June 30, 2017 were $1.1 million, an increase of $0.2 million from $0.9 million for the three months ended June 30, 2016. Higher expenses in the three months ended June 30, 2017 were mainly due to activities associated with the Höegh Grace, partly offset by $0.1 million lower administrative expenses for the Höegh Gallant and the PGN FSRU Lampung.

Segment EBITDA for the three months ended June 30, 2017 was 22.8 million, an increase of $5.5 million from $17.3 million for the three months ended June 30, 2016 mainly due to our 51% interest in the contribution from the operations of the Höegh Grace.

Joint venture FSRUs. The following table sets forth details of segment results for the Joint venture FSRUs for the three months ended June 30, 2017 and 2016:

	Three months ended						Positive
Joint venture FSRUs	June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Time charter revenues	$	10,225		$	10,379		$	(154	)
Vessel operating expenses		(1,834	)		(1,666	)		(168	)
Administrative expenses		(150	)		(242	)		92
Segment EBITDA		8,241			8,471			(230	)
Depreciation and amortization		(2,476	)		(2,376	)		(100	)
Operating income (loss)		5,765			6,095			(330	)
Gain (loss) on derivative instruments		(785	)		(4,174	)		3,389
Other income (expense), net		(3,429	)		(3,787	)		358
Income (loss) before tax		1,551			(1,866	)		3,417
Income tax expense		—			—			—
Net income (loss)	$	1,551		$	(1,866	)	$	3,417

Total time charter revenues for the three months ended June 30, 2017 were $10.2 million, a decrease of $0.2 million compared to $10.4 million for the three months ended June 30, 2016. Time charter revenues for the three months ended June 30, 2017 reflected lower recovery of cost incurred related to the operations of the Neptune in Turkey.

Vessel operating expenses were $1.8 million for the three months ended June 30, 2017 compared to $1.7 million for the three months ended June 30, 2016. The increase in vessel operating expenses was largely due to costs related to the operations of the Neptune in Turkey in the three months ended June 30, 2017.

Administrative expenses were $0.2 million for each of the three months ended June 30, 2017 and 2016.

Segment EBITDA was $8.2 million for the three months ended June 30, 2017 compared with $8.5 million for the three months ended June 30, 2016.

Other. The following table sets forth details of other results for the three months ended June 30, 2017 and 2016:

	Three months ended						Positive
Other	June 30,						(negative)
(in thousands of U.S. dollars)	2017			2016			variance
Administrative expenses	$	(1,400	)	$	(1,524	)	$	124
Segment EBITDA		(1,400	)		(1,524	)		124
Operating income (loss)		(1,400	)		(1,524	)		124
Other financial income (expense), net		(1,033	)		(1,036	)		3
Income (loss) before tax		(2,433	)		(2,560	)		127
Income tax expense		—			(1	)		1
Net income (loss)	$	(2,433	)	$	(2,561	)	$	128

Administrative expenses and Segment EBITDA for the three months ended June 30, 2017 were $1.4 million, a decrease of $0.1 million from $1.5 million for the three months ended June 30, 2016.

Other financial income (expense), net was an expense of $1.0 million for each of the six months ended June 30, 2017 and 2016.

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 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 maintaining cash reserves against fluctuations in operating cash flows.

Our sources of liquidity include cash balances, cash flows from our operations, interest payments from our advances to our joint ventures and our current undrawn balance under the $85 million revolving credit facility from Höegh LNG. The advances to our joint ventures (shareholder loans including accrued interest from prior periods) are subordinated to the joint ventures’ long-term bank debt, consisting of the Neptune facility and the Cape Ann facility. The original principal on the shareholder loans have been repaid and the remaining balance includes accrued interest from prior periods. The outstanding balance accrues interest until repaid. 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; and c) under Cayman Islands law may be paid out of profits or capital reserves subject to the joint venture being solvent after the distribution. Dividends from Höegh Lampung may only be paid out of profits under Singapore law. Dividends from PT Höegh may only be paid if its retained earnings are positive under Indonesian law and requirements are fulfilled under the Lampung facility. In addition, PT Höegh, as an Indonesian incorporated company, is required to establish a statutory reserve equal to 20% of its paid up capital. The dividend can only be distributed if PT Höegh’s retained earnings are positive after deducting the statutory reserve. As of June 30, 2017, PT Höegh had negative retained earnings and therefore cannot make dividend payments under Indonesia law. However, subject to meeting a debt service ratio of 1.20 to 1.00, PT Höegh can distribute cash from its cash flow from operations to us as payment of intercompany accrued interest and/or intercompany debt, after quarterly payments of the Lampung facility and fulfilment of the “waterfall” provisions to meet operating requirements as defined by the Lampung facility. Under Cayman Islands law, Höegh FSRU III, 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. In addition, Höegh FSRU IV would also need to remain in compliance with the financial covenants under the Gallant/Grace facility. Dividends from Höegh Cyprus may only be distributed (i) out of profits and not from the share capital of the company and (ii) if after the dividend payment, Höegh Cyprus would remain in compliance with the financial covenants under the Gallant/Grace facility. Dividends from Höegh Colombia may only be distributed if after the dividend payment, Höegh Colombia would remain in compliance with the financial covenants under the Gallant/Grace facility.

For a description of our credit facilities and the seller’s credit note issued in connection with the acquisition of the Höegh Gallant, please see Notes 14 and 17 to the audited consolidated and combined financial statements contained in our 2016 Form 20-F as well as Note 12 to the unaudited condensed interim consolidated financial statements contained in this Report on Form 6-K.

As of June 30, 2017, we do not have material commitments for capital expenditures for our current business. Our expected expenditures for our current business include final payments under warranty provisions. The expenditures are indemnified by Höegh LNG under the omnibus agreement that we entered into with Höegh LNG in connection with the closing of the IPO (the “omnibus agreement”). The funding for these expenditures was provided by Höegh LNG in the third quarter of 2017.

On August 24, 2017, we announced our subsidiary had entered into a term-sheet to acquire an additional 23.5% interest in each of the joint ventures owning the FSRUs Neptune and GDF Suez Cape Ann and 23.5% of the related outstanding shareholder loans (the “Acquisition”). Closing of the Acquisition is subject to the execution of a definitive purchase agreement as well as certain other documentation and final board approvals. The purchase price of the Acquisition is $27.3 million including the 23.5% of outstanding shareholder loans from MOL. The Partnership currently owns 50% of each joint venture. Following the transaction, MOL will continue to hold 25% of each joint venture. The Partnership has completed a preliminary assessment of the accounting to be applied that following the transaction. Based on this assessment, it expects to continue to account for the joint ventures using the equity method. We expect to finance the acquisition through raising equity, incurring debt or a combination of the two.

As of June 30, 2017, the Partnership had cash and cash equivalents of $15.5 million and $64.7 million of the undrawn portion of the $85 million revolving credit facility. In August 2017, the Partnership drew $4.0 million on the revolving credit facility. Following the drawdown in August, the undrawn balance on the revolving credit facility was $60.7 million. In December 2016, the Partnership completed the sale of 6,588,389 common units in a public offering raising approximately $111.5 million in net proceeds after directly attributable expenses. On January 3, 2017, the Partnership closed the acquisition for a 51% interest in the Höegh Grace entities for a cash payment of $91.8 million. Cash from the proceeds of the public offering to be used for this purpose had been classified as non-current cash designated for the acquisition as of December 31, 2016. In December 2016, the Partnership had used $12.6 million of the proceeds to repay part of the seller’s credit and $6.6 million to settle the working capital adjustment; both of which arose from the 2015 acquisition of the Höegh Gallant. In the second quarter of 2017, we repaid $0.4 million of the working capital adjustment from the 2016 acquisition of the Höegh Grace.

Current restricted cash for operating obligations of the PGN FSRU Lampung was $11.9 million and long-term restricted cash required under the Lampung facility was $14.1 million as of June 30, 2017.

The Partnership’s book value and outstanding principal of total long-term debt was $557.3 million and $563.1 million, respectively, as of June 30, 2017, including long-term debt financing our FSRUs, and the revolving credit facility and seller’s credit note due to owners and affiliates. This includes 100% of the long-term debt of the Höegh Grace entities which are consolidated. The long-term debt is repayable in quarterly installments of $11.4 million. As of June 30, 2017, the Partnership had outstanding interest rate swap agreements for a total notional amount of $434.8 million to hedge against the interest rate risks of its long-term debt under the Lampung, Gallant and Grace facilities. For additional information, refer to “Qualitative and Quantitative Disclosure About Market Risk” and note 16 to the unaudited condensed interim consolidated financial statements. As of June 30, 2017, the Partnership’s total current liabilities exceeded total current assets by $22.5 million. This is partly a result of mark-to-market valuations of its interest rate swaps (derivative instruments) of $3.8 million and the current portion of long-term debt of $45.5 million being classified current while the restricted cash of $14.1 million associated with the Lampung facility is classified as long-term asset. We do not plan to terminate the interest rate swaps before their maturity and, as a result, we will not realize these liabilities. Further, the current portion of long-term debt reflects principal payments for the next twelve months which will be funded, for the most part, by future cash flows from operations. We do not intend to maintain a cash balance to fund our next twelve months’ net liabilities. The Partnership believes its current resources, including the undrawn balance under the revolving credit facility, are sufficient to meet the Partnership’s working capital requirements for its current business for the next twelve months.

On May 15, 2017, the Partnership paid a quarterly cash distribution with respect to the quarter ended March 31, 2017 of $0.43 per unit. The total amount of the distribution was $14.4 million.

On August 14, 2017, the Partnership paid a quarterly cash distribution with respect to the quarter ended June 30, 2017 of $0.43 per unit which corresponds to an annualized distribution of $1.72 per unit. The total amount of the distribution was $14.4 million.

In August 2017, the Partnership drew $4.0 million on the revolving credit facility.

In the second quarter of 2017, the Partnership filed and was paid $0.6 million of claims for indemnification from Höegh LNG for the three months ended March 31, 2017 for non-budgeted expenses under the omnibus agreement related to the PGN FSRU Lampung and losses with respect to the commencement of services under the time charter with EgyptCo pursuant to the contribution, purchase and sale agreement for the acquisition of the Höegh Gallant. The Partnership filed claims for $0.2 million in the third quarter of 2017 for indemnification of the additional warranty cost for the Mooring for the three months ended June 30, 2017. In the third quarter of 2017, the Partnership was paid $1.1 million for warranty costs incurred as of June 30, 2017 based on claims filed for the second quarter of 2017 and earlier periods.

Please read notes 6, 14 and 17 to our unaudited condensed interim consolidated financial statements included in this Report for more information.

Cash Flows

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

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands of U.S. dollars)	2017			2016			2017			2016
Net cash provided by (used in) operating activities	$	15,178			7,493			34,755		$	19,436
Net cash provided by (used in) investing activities		446			2,788			5,057			4,994
Net cash provided by (used in) financing activities		(18,939	)		(18,566	)		(43,275	)		(39,292	)
Increase (decrease) in cash and cash equivalents		(3,315	)		(8,285	)		(3,463	)		(14,862	)
Cash and cash equivalents, beginning period		18,767			26,291			18,915			32,868
Cash and cash equivalents, end of period	$	15,452			18,006			15,452		$	18,006

Six Months ended June 30, 2017 Compared with the Six Months ended June 30, 2016

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $34.8 million for the six months ended June 30, 2017, an increase of $15.4 million compared with $19.4 million for the six months ended June 30, 2016. Cash provided by operating activities, before changes in working capital, increased by $20.8 million primarily due to inclusion of the operations of the Höegh Grace for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. As discussed further below, increased interest payments of $2.9 million on the advances from the joint ventures for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 were part of the reason for the increase in cash provided by operating activities, before changes in working capital. Changes in working capital reduced net cash provided by operating activities by $5.0 million, a decrease of $5.5 million from a positive contribution of $0.5 million for the six months ended June 30, 2017 and 2016, respectively.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $5.1 million and $5.0 million for the six months ended June 30, 2017 and 2016, respectively. The increase in net cash provided by investing activities of $0.1 million between the periods was the result of $3.8 million in cash acquired in the purchase of the Höegh Grace entities, a $4.0 million decrease in the receipts from principal repayments on advances to joint ventures, $0.5 million less expenditures for vessels and other equipment and $0.1 million in increased receipts from repayment on principal on the direct financing lease related to the PGN FSRU Lampung. The joint ventures have repaid the original principal on the advances to joint ventures and all of the payments for the six months ended June 30, 2017 represent payments of interest, including accrued interest repaid at the end of the loans. Interest payments are treated as return on investment and included as a component of net cash provided by operating activities in the consolidated statements of cash flows. For the six months ended June 30, 2017, cash provided by investing activities includes $1.7 million in receipts of repayment on principal on the direct financing lease since the PGN FSRU Lampung is accounted for as a financial lease compared to $1.6 million for the corresponding period of 2016.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities for the six months ended June 30, 2017 was $43.3 million compared with net cash used in financing activities of $39.3 million for the six months ended June 30, 2016.

Net cash used in financing activities for the six months ended June 30, 2017 was mainly due to the repayment of $9.5 million on the Lampung facility, $6.6 million on the Gallant facility, $6.6 million on the Grace facility, payment of $1.3 million on a customer loan for funding of VAT on import in Indonesia, our payment of cash distributions to our unitholders of $28.2 million and cash distributions to non-controlling interest of $3.9 million. This was partially offset by receipt of $11.7 million under the revolving credit facility and $1.0 million from Höegh LNG for the indemnification claimed for non-budgeted expenses and losses incurred for technical issues related to 2016 and the first quarter of 2017.

Net cash used in financing activities during the six months ended June 30, 2016 was mainly due to the repayment of $9.5 million on the Lampung facility and $6.6 million on the Gallant facility, payment of $2.9 million on a customer loan for funding of VAT on import in Indonesia, and our payment of cash distributions to our unitholders of $21.9 million. This was partially offset by the receipt of $1.3 million from Höegh LNG for the indemnification claim for non-budgeted expenses related to 2015 and the first quarter of 2016.

As a result of the foregoing, cash and cash equivalents decreased by $3.5 million for the six months ended June 30, 2017 and decreased by $14.9 million for the six months ended June 30, 2016.

Three Months Ended June 30, 2017 Compared with the Three Months Ended June 30, 2016

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $15.2 million for the three months ended June 30, 2017, an increase of $7.7 million compared with $7.5 million for the three months ended June 30, 2016. Cash provided by operating activities, before changes in working capital, increased by $10.7 million primarily due to inclusion of the operations of the Höegh Grace for the three months ended June 30, 2017 compared to the three months ended June 30, 2016. As discussed further below, increased interest payments of $1.5 million on the advances from the joint ventures for the three months ended June 30, 2017 compared to the three months ended June 30, 2016 were part of the reason for the increase in cash provided by operating activities, before changes in working capital. However, net cash provided by changes in working capital decreased by $3.0 million for the three months ended June 30, 2017 compared to the three months ended June 30, 2016, mainly due to increased restricted cash in our Indonesian subsidiary.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $0.4 million and $2.8 million for the three months ended June 30, 2017 and 2016, respectively. The decrease in net cash provided by investing activities of $2.4 million between the periods was mainly the result of a $2.3 million decrease in the receipts from principal repayments on advances to joint ventures and the payment of $0.4 million of the working capital adjustment related to the acquisition of the Höegh Grace entities. The joint ventures have repaid the original principal on the advances to joint ventures and all of the payments for the three months ended June 30, 2017 represent payments of interest, including accrued interest repaid at the end of the loans. Interest payments are treated as return on investment and included as a component of net cash provided by operating activities in the consolidated statements cash flow. For the three months ended June 30, 2017, cash provided by investing activities includes $0.9 million in receipts of repayment on principal on the direct financing lease since the PGN FSRU Lampung is accounted for as a financial lease compared to $0.8 million for the corresponding period of 2016.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities for the three months ended June 30, 2017 was $18.9 million compared with $18.6 million for the three months ended June 30, 2016.

Net cash used in financing activities for the three months ended June 30, 2017 was mainly due to the quarterly repayment of $4.8 million on the Lampung facility, $3.3 million on the Gallant facility and $3.3 million on the Grace facility, our payment of cash distributions to our unitholders of $14.4 million and cash distributions to non-controlling interest of $3.9 million. This was partially offset by receipt of $10.1 million under the revolving credit facility and $0.6 million from Höegh LNG for the indemnification claimed for non-budgeted expenses and losses incurred for technical issues related to first quarter of 2017.

Net cash used in financing activities for the three months ended June 30, 2016 was mainly due to the quarterly repayment of $4.8 million on the Lampung facility and $3.3 million on the Gallant facility, and our payment of cash distributions to our unitholders of $11.0 million. This was partially offset by the receipt of $0.3 million from Höegh LNG for the indemnification claim for non-budgeted expenses related to first quarter of 2016.

As a result of the foregoing, cash and cash equivalents decreased by $3.3 million and $8.3 million for the three months ended June 30, 2017 and 2016, respectively.

Qualitative and Quantitative Disclosures About Market Risk

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

Foreign Exchange Risk

All financing, interest expenses from financing and most of the Partnership’s revenue and expenditures for vessel improvements are denominated in U.S. dollars. Certain operating expenses can be denominated in currencies other than U.S. dollars. For the three months ended June 30, 2017, and 2016, no derivative financial instruments have been used to manage foreign exchange risk. The Gallant time charter provides that revenues are denominated 90% in U.S. dollars and 10% in Egyptian pounds, or as otherwise agreed between the parties from time to time. For the three and six months ended June 30, 2017, the revenues from the Höegh Gallant were denominated 94% in U.S. dollars and 6% in Egyptian pounds. The revenues from the Höegh Gallant were denominated 93% and 92% in U.S. dollars and 7% and 8% in Egyptian pounds for the three and six months ended June 30, 2016, respectively. A limited amount of operating expenses was also denominated in Egyptian pounds. Due to restrictions in Egypt, exchangeability between Egyptian pounds and other currencies was more than temporarily lacking or limited during 2016 and 2017. There are two official published rates for Egyptian pounds. The lower rate is applied in the Partnership’s consolidated financial statements for revenues, expenses, assets and liabilities. For most of 2016 and all of 2017, the Partnership has agreed to the payment of monthly revenues denominated in Egyptian pounds that align with its working capital needs for the next month which reduces its foreign exchange rate exposure to a minimal amount and the risk of loss should the Egyptian pound be devalued.

Interest Rate Risk

Interest rate swaps are utilized to exchange a receipt of floating interest for a payment of fixed interest to reduce the exposure to interest rate variability on our outstanding floating-rate debt. As of June 30, 2017 there are interest rate swap agreements on the Lampung, Gallant and Grace facilities floating rate debt that are designated as cash flow hedges for accounting purposes. As of June 30, 2017, 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

164,677

(5,625

)

Sept 2026

2.8%

Gallant interest rate swaps (2)

LIBOR

129,188

(823

)

Sept 2019

1.9%

Grace interest rate swaps (2)

LIBOR

140,938

(2,219

)

March 2020

2.3%

Excludes the margins paid on the floating-rate debt.

All interest rate swaps are U.S. dollar denominated and principal amount reduces quarterly.

Credit Risk

Credit risk is the exposure to credit loss in the event of non-performance by the counterparties related to cash and cash equivalents, restricted cash, trade receivables and interest rate swap agreements. In order to minimize counterparty risk, bank relationships are established with counterparties with acceptable credit ratings at the time of the transactions. Credit risk related to receivables is limited by performing ongoing credit evaluations of the customers' financial condition. In addition, Höegh LNG guarantees the payment of the Höegh Gallant time charter hire by EgyptCo under certain circumstances.

Concentrations of Risk

Financial instruments, which potentially subject the Partnership 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. The Partnership does not have a policy of requiring collateral or security. Cash and cash equivalents and restricted cash are placed with qualified financial institutions. Periodic evaluations are performed of the relative credit standing of those financial institutions. In addition, exposure is limited by diversifying among counterparties. There are three charterers so there is a concentration of risk related to trade receivables. Credit risk related to trade receivables is limited by performing ongoing credit evaluations of the customer’s financial condition. In addition, Höegh LNG guarantees the payment of the Höegh Gallant time charter hire by EgyptCo under certain circumstances. No allowance for doubtful accounts was recorded for the three month periods ended June 30, 2017 and 2016 and the year ended December 31, 2016. While the maximum exposure to loss due to credit risk is the book value of trade receivables at the balance sheet date, should any of the time charters terminate prematurely, there could be delays in obtaining a new time charter and the rates could be lower depending upon the prevailing market conditions

Non-GAAP Financial Measure

Segment EBITDA. EBITDA is defined as earnings before interest, depreciation and amortization and taxes. Segment EBITDA is defined as earnings before interest, depreciation and amortization, taxes and other financial items less non-controlling interest in Segment EBITDA. Other financial items consist of gains and losses 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, other financial items, depreciation and amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. The Partnership believes that including Segment EBITDA as a financial and operating measure benefits investors in (a) selecting between investing in it and other investment alternatives and (b) monitoring its ongoing financial and operational strength in assessing whether to continue to hold common units. Segment EBITDA is a non-GAAP financial measure and should not be considered as an alternative to net income, operating income or any other measure of financial performance presented in accordance with U.S. GAAP. Segment EBITDA excludes some, but not all, items that affect net income, and these measures may vary among other companies. Therefore, Segment EBITDA as presented below may not be comparable to similarly titled measures of other companies. The following tables reconcile Segment EBITDA for each of the segments and the Partnership as a whole to net income (loss), the comparable U.S. GAAP financial measure, for the periods presented:

	Six months ended June 30, 2017
				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)	$	27,099			6,360			(5,058	)		28,401						$	28,401		(3)
Interest income		—			(24	)		(243	)		(267	)		24		(4)		(243	)
Interest expense		13,282			6,987			2,206			22,475			(6,987	)	(4)		15,488
Depreciation and amortization		10,526			4,916			—			15,442			(4,916	)	(5)		10,526
Other financial items (2)		1,291			(1,693	)		23			(379	)		1,693		(6)		1,314
Income tax (benefit) expense		3,797			—			—			3,797							3,797
Equity in earnings of JVs: Interest (income) expense, net		—			—			—			—			6,963		(4)		6,963
Equity in earnings of JVs: Depreciation and amortization		—			—			—			—			4,916		(5)		4,916
Equity in earnings of JVs: Other financial items (2)		—			—			—			—			(1,693	)	(6)		(1,693	)
Non-controlling interest in Segment EBITDA		(10,417	)		—			—			(10,417	)						(10,417	)
Segment EBITDA	$	45,578			16,546			(3,072	)		59,052						$	59,052

(1)

Eliminations reverse each of the income statement reconciling line items of the proportional amounts for Joint venture FSRUs that are reflected in the consolidated net income for the Partnership's share of the Joint venture FSRUs net income (loss) on the Equity in earnings (loss) of joint ventures line item in the consolidated income statement. Separate adjustments from the consolidated net income to Segment EBITDA for the Partnership's share of the Joint venture FSRUs are included in the reconciliation lines starting with “Equity in earnings of JVs.”

(2)

Other financial items consist of gains and losses on derivative instruments and other items, net including foreign exchange gains or losses and withholding tax on interest expense.

(3)

There is no adjustment between net income for Total Segment reporting and the Consolidated reporting because the net income under the proportional consolidation and equity method of accounting is the same.

(4)

Interest income and interest expense for the Joint venture FSRUs is eliminated from the Total Segment reporting to agree to the interest income and interest expense in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Interest (income) expense for the Consolidated reporting.

(5)

Depreciation and amortization for the Joint venture FSRUs is eliminated from the Total Segment reporting to agree to the depreciation and amortization in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Depreciation and amortization for the Consolidated reporting.

(6)

Other financial items for the Joint venture FSRUs is eliminated from the Segment reporting to agree to the Other financial items in the Consolidated reporting and reflected as a separate adjustment to the equity accounting on the line Equity in earnings of JVs: Other financial items for the Consolidated reporting.

	Six months ended June 30, 2016
			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)	$	16,665		(8,575	)		(5,068	)		3,022						$	3,022		(3)
Interest income		—		—			(505	)		(505	)		—		(4)		(505	)
Interest expense		10,257		7,652			2,503			20,412			(7,652	)	(4)		12,760
Depreciation and amortization		5,265		4,755			—			10,020			(4,755	)	(5)		5,265
Other financial items(2)		1,301		13,184			38			14,523			(13,184	)	(6)		1,339
Income tax (benefit) expense		946		—			3			949							949
Equity in earnings of JVs: Interest (income) expense, net		—		—			—			—			7,652		(4)		7,652
Equity in earnings of JVs: Depreciation and amortization		—		—			—			—			4,755		(5)		4,755
Equity in earnings of JVs: Other financial items(2)		—		—			—			—			13,184		(6)		13,184
Segment EBITDA	$	34,434		17,016			(3,029	)		48,421						$	48,421

(1)

(2)

Other financial items consist of gains and losses on derivative instruments and other items, net including foreign exchange gains or losses and withholding tax on interest expense.

(3)

(4)

(5)

(6)

	Three months ended June 30, 2017
				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)	$	13,094			1,551			(2,433	)		12,212						$	12,212		(3)
Interest income		—			(13	)		(113	)		(126	)		13		(4)		(113	)
Interest expense		6,615			3,442			1,137			11,194			(3,442	)	(4)		7,752
Depreciation and amortization		5,263			2,476			—			7,739			(2,476	)	(5)		5,263
Other financial items (2)		1,166			785			9			1,960			(785	)	(6)		1,175
Income tax (benefit) expense		2,042			—			—			2,042							2,042
Equity in earnings of JVs: Interest (income) expense, net		—			—			—			—			3,429		(4)		3,429
Equity in earnings of JVs: Depreciation and amortization		—			—			—			—			2,476		(5)		2,476
Equity in earnings of JVs: Other financial items (2)		—			—			—			—			785		(6)		785
Non-controlling interest in Segment EBITDA		(5,423	)		—			—			(5,423	)						(5,423	)
Segment EBITDA	$	22,757			8,241			(1,400	)		29,598						$	29,598

(1)

(2)

Other financial items consist of gains and losses on derivative instruments and other items, net including foreign exchange gains or losses and withholding tax on interest expense.

(3)

(4)

(5)

(6)

	Three months ended June 30, 2016
			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)	$	8,489		(1,866	)		(2,561	)		4,062						$	4,062		(3)
Interest income		—		—			(232	)		(232	)		—		(4)		(232	)
Interest expense		5,102		3,787			1,252			10,141			(3,787	)	(4)		6,354
Depreciation and amortization		2,636		2,376			—			5,012			(2,376	)	(5)		2,636
Other financial items(2)		620		4,174			16			4,810			(4,174	)	(6)		636
Income tax (benefit) expense		500		—			1			501							501
Equity in earnings of JVs: Interest (income) expense, net		—		—			—			—			3,787		(4)		3,787
Equity in earnings of JVs: Depreciation and amortization		—		—			—			—			2,376		(5)		2,376
Equity in earnings of JVs: Other financial items(2)		—		—			—			—			4,174		(6)		4,174
Segment EBITDA	$	17,347		8,471			(1,524	)		24,294						$	24,294

(1)

(2)

Other financial items consist of gains and losses on derivative instruments and other items, net including foreign exchange gains or losses and withholding tax on interest expense.

(3)

(4)

(5)

(6)

FORWARD LOOKING STATEMENTS

This report contains certain forward-looking statements concerning future events and our operations, performance and financial condition. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” “plan,” “intend” or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to:

FSRU and LNG carrier market trends, including hire rates and factors affecting supply and demand;

our anticipated growth strategies;

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

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

the effect of the worldwide economic environment;

turmoil in the global financial markets;

fluctuations in currencies and interest rates;

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

changes in our operating expenses, including drydocking and insurance costs;

our ability to make or increase cash distributions on our units and the amount of any such distributions;

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

the future financial condition of our existing or future customers;

our ability to make additional borrowings and to access public equity and debt capital markets;

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

the exercise of purchase options by our customers;

our ability to maintain long-term relationships with our customers;

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

our ability to consummate the acquisition of the 23.5% interest in the joint ventures that own the Neptune and the GDF Suez Cape Ann from MOL which depends on, but is not limited to, the execution of a definitive purchase agreement and other definitive documentation and receipt of board approvals for the Acquisition; the timing of the Acquisition and the satisfaction of the conditions to closing thereof; the Partnership's ability to finance the acquisition;

our ability to purchase the 49% interest in the Höegh Grace entities or additional vessels from Höegh LNG in the future;

our ability to integrate and realize the anticipated benefits from the acquisition of the 51% interest in the Höegh Grace entities;

our continued ability to enter into long-term, fixed-rate charters;

the operating performance of our vessels and any related claims by customers;

our ability to maximize the use of our vessels, including the redeployment or disposition of vessels no longer under long-term charters;

expected pursuit of strategic opportunities, including the acquisition of vessels;

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

timely acceptance of our vessels by their charterers;

termination dates and extensions of charters;

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

demand in the FSRU sector or the LNG shipping sector in general and the demand for our vessels in particular;

availability of skilled labor, vessel crews and management;

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

the anticipated taxation of the Partnership and distributions to unitholders;

estimated future maintenance and replacement capital expenditures;

our ability to retain key employees;

customers’ increasing emphasis on environmental and safety concerns;

potential liability from any pending or future litigation;

potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists;

future sales of our common units in the public market;

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

our ability to successfully remediate any material weaknesses in our internal control over financial reporting and our disclosure controls and procedures; and

other factors listed from time to time in the reports and other documents that we files with the SEC, including our Annual Report on Form 20-F for the year ended December 31, 2016 and subsequent quarterly reports on Form 6-K.

All forward-looking statements included in this report are made only as of the date of this report. New factors emerge from time to time, and it is not possible for the Partnership to predict all of these factors. Further, the Partnership cannot assess the impact of each such factor on its business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement. The Partnership does not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

HÖEGH LNG PARTNERS LP

INDEX TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

	Page

Unaudited Condensed Interim Consolidated Statements of Income for the Three and Six Months Ended June 30, 2017 and 2016	F-2

Unaudited Condensed Interim Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016	F-3

Unaudited Condensed Interim Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	F-4

Unaudited Condensed Interim Consolidated Statements of Changes in Partners’ Capital for the Six Months Ended June 30, 2017 and the Year Ended December 31, 2016	F-6

Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2017 and 2016	F-7

Notes to Unaudited Condensed Interim Consolidated Financial Statements	F-9

F-1

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF INCOME

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

		Three months ended						Six months ended
		June 30,						June 30,
	Notes	2017			2016			2017			2016
REVENUES
Time charter revenues	5	$	35,024			22,785			70,101		$	44,454
Total revenues	5		35,024			22,785			70,101			44,454
OPERATING EXPENSES
Vessel operating expenses			(5,628	)		(4,252	)		(11,805	)		(8,034	)
Construction contract expenses	6		(151	)		(315	)		(151	)		(315	)
Administrative expenses			(2,465	)		(2,395	)		(5,222	)		(4,700	)
Depreciation and amortization	10		(5,263	)		(2,636	)		(10,526	)		(5,265	)
Total operating expenses			(13,507	)		(9,598	)		(27,704	)		(18,314	)
Equity in earnings (losses) of joint ventures	5,13		1,551			(1,866	)		6,360			(8,575	)
Operating income (loss)	5		23,068			11,321			48,757			17,565
FINANCIAL INCOME (EXPENSE), NET
Interest income			113			232			243			505
Interest expense			(7,752	)		(6,354	)		(15,488	)		(12,760	)
Gain (loss) on derivative instruments			247			326			910			662
Other items, net			(1,422	)		(962	)		(2,224	)		(2,001	)
Total financial income (expense), net	7		(8,814	)		(6,758	)		(16,559	)		(13,594	)
Income (loss) before tax			14,254			4,563			32,198			3,971
Income tax expense	8		(2,042	)		(501	)		(3,797	)		(949	)
Net income (loss)	5	$	12,212			4,062			28,401		$	3,022
Non-controlling interest in net income			2,812			—			5,556			—
Partners’ interest in net income (loss)		$	9,400			4,062			22,845		$	3,022

Earnings per unit
Common unit public (basic and diluted)	18	$	0.28		$	0.15		$	0.68		$	0.11
Common unit Höegh LNG (basic and diluted)	18	$	0.30		$	0.16		$	0.71		$	0.12
Subordinated unit (basic and diluted)	18	$	0.30		$	0.16		$	0.71		$	0.12

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

F-2

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of U.S. dollars)

		Three months ended						Six months ended
		June 30,						June 30,
	Notes	2017			2016			2017			2016
Net income (loss)		$	12,212			4,062			28,401		$	3,022
Unrealized gains (losses) on cash flow hedge	16		(1,029	)		(2,349	)		111			(8,387	)
Income tax benefit (expense)	16		(83	)		(82	)		(175	)		(146	)
Other comprehensive income (loss)			(1,112	)		(2,431	)		(64	)		(8,533	)
Comprehensive income (loss)		$	11,100			1,631			28,337		$	(5,511	)
Non-controlling interest in comprehensive income			2,640			—			5,541			—
Partners' interest in comprehensive income (loss)		$	8,460			1,631			22,796		$	(5,511	)

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

F-3

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
BALANCE SHEETS

(in thousands of U.S. dollars)

		As of
		June 30,		December 31,
	Notes	2017		2016
ASSETS
Current assets
Cash and cash equivalents	15	$	15,452	$	18,915
Restricted cash	15		11,918		8,055
Trade receivables			6,719		2,088
Amounts due from affiliates	14,15		4,169		4,237
Advances to joint ventures	9,15		4,623		6,275
Inventory			666		697
Current portion of net investment in direct financing lease			3,642		3,485
Prepaid expenses and other receivables			840		609
Total current assets			48,029		44,361
Long-term assets
Restricted cash	15		14,076		14,154
Cash designated for acquisition	4		—		91,768
Vessels, net of accumulated depreciation	10		689,241		342,591
Other equipment			597		592
Intangibles and goodwill	11		26,200		16,241
Advances to joint ventures	9,15		—		943
Net investment in direct financing lease			284,765		286,626
Long-term deferred tax asset	8		72		791
Other long-term assets			10,633		12,400
Total long-term assets			1,025,584		766,106
Total assets		$	1,073,613	$	810,467

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

F-4

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED
BALANCE SHEETS

(in thousands of U.S. dollars)

		As of
		June 30,			December 31,
	Notes	2017			2016
LIABILITIES AND EQUITY
Current liabilities
Current portion of long-term debt	12,15	$	45,458		$	32,208
Trade payables			283			972
Amounts due to owners and affiliates	14,15		615			1,374
Value added and withholding tax liability			1,082			796
Derivative instruments	15,16		3,825			3,534
Accrued liabilities and other payables			19,289			18,932
Total current liabilities			70,552			57,816
Long-term liabilities
Accumulated losses of joint ventures	13		19,526			25,886
Long-term debt	12,15		457,169			300,440
Revolving credit and seller’s credit due to owners and affiliates	14,15		54,705			43,005
Derivative instruments	15,16		4,842			3,511
Long-term tax liability			2,452			2,228
Long-term deferred tax liability			2,766			1,556
Other long-term liabilities			10,485			11,235
Total long-term liabilities			551,945			387,861
Total liabilities			622,497			445,677
EQUITY
Common units public			318,439			321,091
Common units Höegh LNG			6,689			6,849
Subordinated units			41,591			42,586
Accumulated other comprehensive income (loss)			(5,785	)		(5,736	)
Total partners' capital			360,934			364,790
Non-controlling interest			90,182			—
Total equity			451,116			364,790
Total liabilities and equity		$	1,073,613		$	810,467

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

F-5

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(in thousands of U.S. dollars)

	Partners' Capital
	Common Units Public			Common Units Höegh LNG			Sub- ordinated Units			Accumulated Other Comprehensive Income			Non- controlling interest			Total Equity
Consolidated balance as of December 31, 2015	$	209,372			6,604			41,063			(7,241	)		—		$	249,798
Net income		18,133			3,221			20,023			—			—			41,377
Cash distributions to unitholders		(18,225	)		(3,554	)		(22,098	)		—			—			(43,877	)
Cash contribution from Höegh LNG		—			532			3,311			—			—			3,843
Other comprehensive loss		—			—			—			1,505			—			1,505
Net proceeds from issuance of common units		111,529			—			—			—			—			111,529
Issuance of units for Board of Directors' fee		189			—			—			—			—			189
Other and contributions from owners		93			46			287			—			—			426
Consolidated balance as of December 31, 2016		321,091			6,849			42,586			(5,736	)		—			364,790
Non-controlling interest acquired from the purchase of the Höegh Grace entities		—			—			—			—			88,561			88,561
Net income		11,940			1,511			9,394						5,556			28,401
Cash distributions to unitholders		(14,861	)		(1,842	)		(11,452	)		—			—			(28,155	)
Cash distributions to non-controlling interest		—			—			—			—			(3,920	)		(3,920	)
Cash contribution from Höegh LNG		—			140			869			—			—			1,009
Other comprehensive income		—			—			—			(49	)		(15	)		(64	)
Issuance of units for Board of Directors' fees		189			—			—			—			—			189
Contributions from owners		80			31			194			—			—			305
Consolidated balance as of June 30, 2017	$	318,439			6,689			41,591			(5,785	)		90,182		$	451,116

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

F-6

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED

STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
OPERATING ACTIVITIES
Net income (loss)	$	12,212			4,062			28,401		$	3,022
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		5,263			2,636			10,526			5,265
Equity in losses (earnings) of joint ventures		(1,551	)		1,866			(6,360	)		8,575
Changes in accrued interest income on advances to joint ventures		1,398			(138	)		2,595			(303	)
Amortization of deferred debt issuance cost and fair value of debt assumed		210			520			423			1,043
Amortization in revenue for above market contract		906			598			1,801			1,196
Changes in accrued interest expense		93			(273	)		(96	)		(221	)
Net currency exchange losses (gains)		787			23			921			(27	)
Unrealized loss (gain) on derivative instruments		(247	)		(326	)		(910	)		(662	)
Non-cash revenue: tax paid directly by charterer		(432	)		—			(432	)		—
Non-cash income tax expense: tax paid directly by charterer		432			—			432			—
Deferred tax expense and uncertain tax position		924			470			1,978			811
Issuance of units for Board of Directors' fees		189			189			189			189
Other adjustments		151			37			308			64
Changes in working capital:
Restricted cash		(3,078	)		(453	)		(3,844	)		559
Trade receivables		182			(22	)		(185	)		(27	)
Inventory		17			16			31			33
Prepaid expenses and other receivables		690			284			1			9
Trade payables		(625	)		(395	)		(874	)		(877	)
Amounts due to owners and affiliates		(2,437	)		(3,393	)		(1,313	)		(1,174	)
Value added and withholding tax liability		652			1,595			1,909			2,446
Accrued liabilities and other payables		(558	)		197			(746	)		(485	)
Net cash provided by (used in) operating activities		15,178			7,493			34,755			19,436

INVESTING ACTIVITIES
Expenditure for purchase of Höegh Grace entities		(407	)		—			(92,175	)		—
Cash acquired in the purchase of the Höegh Grace entities		—			—			3,774			—
Decrease in restricted cash designated for purchase of the Höegh Grace entities		—			—			91,768			—
Expenditure for vessel and other equipment		(8	)		(317	)		(14	)		(537	)
Receipts from repayment of principal on advances to joint ventures		—			2,316			—			3,970
Receipts from repayment of principal on direct financing lease		861			789			1,704			1,561
Net cash provided by (used in) investing activities	$	446			2,788			5,057		$	4,994

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

F-7

HÖEGH LNG PARTNERS LP

UNAUDITED CONDENSED INTERIM CONSOLIDATED

STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
FINANCING ACTIVITIES
Proceeds from loans and promissory notes due to owners and affiliates	$	10,100			—			11,700		$	—
Repayment of long-term debt		(11,364	)		(8,053	)		(22,729	)		(16,105	)
Repayment of customer loan for funding of value added liability on import		—			—			(1,258	)		(2,869	)
Payment of debt issuance cost		—			5			—			—
Cash distributions to unitholders		(14,438	)		(10,967	)		(28,155	)		(21,934	)
Cash distributions to non-controlling interest		(3,920	)		—			(3,920	)		—
Proceeds from indemnifications received from Höegh LNG		605			292			1,009			1,257
(Increase) decrease in restricted cash		78			157			78			359
Net cash provided by (used in) financing activities		(18,939	)		(18,566	)		(43,275	)		(39,292	)

Increase (decrease) in cash and cash equivalents		(3,315	)		(8,285	)		(3,463	)		(14,862	)
Cash and cash equivalents, beginning of period		18,767			26,291			18,915			32,868
Cash and cash equivalents, end of period	$	15,452			18,006			15,452		$	18,006

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

F-8

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

1. Description of business

Höegh LNG Partners LP (the “Partnership”) is a publicly traded Marshall Islands limited partnership initially formed for the purpose of acquiring from Höegh LNG Holdings Ltd. (“Höegh LNG”) their interests in Hoegh LNG Lampung Pte. Ltd., PT Hoegh LNG Lampung (the owner of the PGN FSRU Lampung and the Tower Yoke Mooring System), SRV Joint Gas Ltd. (the owner of the Neptune), and SRV Joint Gas Two Ltd. (the owner of the GDF Suez Cape Ann) in connection with the Partnership’s initial public offering of its common units (the “IPO”) which was completed in August 2014. As of June 30, 2017, the Partnership has a fleet of five floating storage regasification units (“FSRUs”).

Under the partnership agreement, the general partner has irrevocably delegated to the Partnership’s board of directors the power to oversee and direct the operations of, manage and determine the strategies and policies of the Partnership. Four of the seven board members were elected by the common unitholders at the Partnership’s first annual meeting of unitholders held on September 24, 2014. As a result, Höegh LNG, as the owner of the general partner, does not have the power to control the Partnership’s board of directors or the Partnership, and the Partnership is not considered to be under the control of Höegh LNG for United States generally accepted accounting principles (“US GAAP”) purposes. Therefore, the sale of a business from Höegh LNG to the Partnership is a change of control. As a result, the Partnership accounts for acquisitions of businesses under the purchase method of accounting and not as transfers of entities under common control.

In December 2016, the Partnership issued and sold 6,588,389 common units in an underwritten public offering (refer to note 18) to be used primarily to fund the purchase price of the acquisition of a 51% ownership interest in Höegh LNG Colombia Holding Ltd., the owner of the entities that own and operate the Höegh Grace (the “Höegh Grace entities”).

On January 3, 2017, the Partnership closed the acquisition of a 51% ownership interest in the Höegh Grace entities pursuant to a purchase, sale and contribution agreement that the Partnership entered into with Höegh LNG on December 1, 2016. On January 1, 2017, the Partnership entered an agreement with Höegh LNG, under which Höegh LNG granted to the Partnership the authority to make decisions about operations of Höegh LNG Colombia Holding Ltd. from January 1, 2017 to the closing date of the acquisition. As a result, the Partnership has recorded the results of operations of the entities that own and operate Höegh Grace in its consolidated income statement from January 1, 2017. Refer to note 4.

The Partnership’s 50% interests in SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd., collectively, are referred to as the “joint ventures” and the remaining entities owned by the Partnership, as reflected in the table below are, collectively, referred to as the “subsidiaries” in these consolidated financial statements. The PGN FSRU Lampung, the Höegh Gallant, the Höegh Grace, the Neptune and the GDF Suez Cape Ann are FSRUs and, collectively, referred to in these consolidated financial statements as the vessels or the FSRUs. The Tower Yoke Mooring System (the “Mooring”) is an offshore installation that is used to moor the PGN FSRU Lampung to offload the gas into an offshore pipe that transports the gas to a land terminal. PT Hoegh LNG Lampung, Hoegh LNG Cyprus Limited, the owner of the Höegh Gallant, Höegh LNG FSRU IV Ltd., the owner of the Höegh Grace, and the two joint ventures, SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd., are collectively referred to as the “FSRU-owning entities.”

The Neptune and the GDF Suez Cape Ann operate under long-term time charters with expiration dates in 2029 and 2030, respectively, and, in each case, with an option for the charterer, GDF Suez Global LNG Supply SA, a subsidiary of ENGIE, to extend for up to two additional periods of five years each. The PGN FSRU Lampung, operates under a long term time charter which started in July 2014 with an expiration date in 2034 (with an option for the charterer to extend for up to one additional period of ten years or two additional periods of five years each) and uses the Mooring that was constructed and installed and sold to the charterer, PT PGN LNG Indonesia (“PGN LNG”), a subsidiary of PT Perusahaan Gas Negara (Persero) Tbk (“PGN”). The Höegh Gallant operates under a long term time charter which started in April 2015 with an expiration date in April 2020 with Hoegh LNG Egypt LLC (“EgyptCo”), a subsidiary of Höegh LNG. EgyptCo has a charter with the government-owned Egyptian Natural Gas Holding Company (“EGAS”). Pursuant to an option agreement, the Partnership has the right to cause Höegh LNG to charter the Höegh Gallant from the expiration or termination of the EgyptCo charter until July 2025. The Höegh Grace operates under a long term time charter which started in December 2016 with Sociedad Portuaria El Cayao S.A. E.S.P. (“SPEC”). The non cancellable charter period is 10 years. The initial term of the charter is 20 years. However, each party has an unconditional option to cancel the charter after 10 and 15 years without penalty. However, if SPEC waives its right to terminate in year 10 within a certain deadline, the Partnership will not be able to exercise its right to terminate in year 10.

F-9

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

The following table lists the entities included in these consolidated financial statements and their purpose as of June 30, 2017.

	Jurisdiction of
	Incorporation
Name	or Registration	Purpose
Höegh LNG Partners LP	Marshall Islands	Holding Company
Höegh LNG Partners Operating LLC (100% owned)	Marshall Islands	Holding Company
Hoegh LNG Services Ltd (100% owned)	United Kingdom	Administration Services Company
Hoegh LNG Lampung Pte. Ltd. (100% owned)	Singapore	Owns 49% of PT Hoegh LNG Lampung
PT Hoegh LNG Lampung (49% owned) (1)	Indonesia	Owns PGN FSRU Lampung
SRV Joint Gas Ltd. (50% owned) (2)	Cayman Islands	Owns Neptune
SRV Joint Gas Two Ltd. (50% owned) (2)	Cayman Islands	Owns GDF Suez Cape Ann
Höegh LNG FSRU III Ltd. (100% owned) (3)	Cayman Islands	Owns 100% of Hoegh LNG Cyprus Limited
Hoegh LNG Cyprus Limited (100% owned) (3)	Cyprus	Owns Höegh Gallant
Hoegh LNG Cyprus Limited Egypt Branch (100% owned) (3)	Egypt	Branch of Hoegh LNG Cyprus Limited
Höegh LNG Colombia Holding Ltd. (51% owned) (4)	Cayman Islands	Owns 100% of Höegh LNG FSRU IV Ltd. and Höegh LNG Colombia S.A.S.
Höegh LNG FSRU IV Ltd. (51% indirectly owned) (4)	Cayman Islands	Owns Höegh Grace
Höegh LNG Colombia S.A.S. (51% indirectly owned) (4)	Colombia	Operating Company

(1) PT Hoegh LNG Lampung is a variable interest entity, which is controlled by Hoegh LNG Lampung Pte. Ltd. and is, therefore, 100% consolidated in the consolidated financial statements.

(2) The remaining 50% interest in each joint venture is owned by Mitsui O.S.K. Lines, Ltd. and Tokyo LNG Tanker Co.

(3) The ownership interests were acquired on October 1, 2015.

(4) The 51% ownership interests were acquired on January 3, 2017. Refer to note 4.

2. Significant accounting policies

Basis of presentation

The accompanying unaudited condensed interim consolidated financial statements are prepared in accordance with US GAAP for interim financial information. In the opinion of Management, all adjustments considered necessary for a fair presentation, which are of a normal recurring nature, have been included. All inter-company balances and transactions are eliminated. The footnotes are condensed and do not include all of the disclosures required for a complete set of financial statements. Therefore, the unaudited condensed interim consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016, included in the Partnership’s Annual Report on Form 20-F (the “Annual Report”).

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

F-10

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

Based upon the criteria set forth in US GAAP, the Partnership has determined that PT Hoegh LNG Lampung is a VIE, as the equity holders, through their equity investments, may not participate fully in the entity’s expected residual returns and substantially all of the entity’s activities either involve, or are conducted on behalf of, the Partnership. The Partnership is the primary beneficiary, as it has the power to make key operating decisions considered to be most significant to the VIE and receives all the expected benefits or expected losses. Therefore, 100% of the assets, liabilities, revenues and expenses of PT Hoegh LNG Lampung are included in the consolidated financial statements. Dividends may only be paid if the retained earnings are positive under Indonesian law and requirements are fulfilled under the Lampung Facility. As of June 30, 2017, PT Hoegh LNG Lampung has negative retained earnings and therefore cannot make dividend payments under Indonesia law. Under the Lampung facility, there are limitations on cash dividends and loans that can be made to the Partnership. Refer to note 12.

The Partnership has also determined that Höegh LNG FSRU III Ltd. is a VIE, as the equity investment does not provide sufficient equity to permit the entity to finance its activities without financial guarantees. The Partnership is the primary beneficiary, as it has the power to make key operating decisions considered to be most significant to the VIE and receives all the expected benefits or expected losses. Therefore, 100% of the assets, liabilities, revenues and expenses of Höegh LNG FSRU III Ltd. are included in the consolidated financial statements. Under Cayman Islands law, dividends may only be paid out of profits or capital reserves if the entity is solvent after the distribution. Under the Gallant/Grace facility, there are limitations on dividends and loans distributions that can be made to the Partnership. Refer to note 12. The Partnership is a guarantor of the Gallant/Grace facility.

Höegh LNG Colombia Holding Ltd. is a VIE since the entity would not be able to finance its activities without financial guarantees under its subsidiary’s facility to finance Höegh Grace. As of January 1, 2017, the Partnership is the primary beneficiary, as it has the power to make key operating decisions considered to be most significant to the VIE and receives the majority of the expected benefits or expected losses. Therefore, 100% of the assets, liabilities, revenues and expenses of Höegh LNG Colombia Holding Ltd., and subsidiaries, are included in the consolidated financial statements with a non-controlling interest is reflected for the minority share. Under Cayman Islands law, dividends may only be paid out of profits or capital reserves if the entity is solvent after the distributions.

In addition, the Partnership has determined that the two joint ventures, SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd., are VIEs since each entity did not have a sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support at the time of its initial investment. The entities have been financed with third party debt and subordinated shareholders loans. The Partnership is not the primary beneficiary, as the Partnership cannot make key operating decisions considered to be most significant to the VIEs, but has joint control with the other equity holders. Therefore, the joint ventures are accounted for under the equity method of accounting as the Partnership has significant influence. The Partnership’s carrying value is recorded in advances to joint ventures and accumulated losses of joint ventures in the consolidated balance sheets. For SRV Joint Gas Ltd., the Partnership had a receivable for the advances of $3.0 million and $3.9 million, respectively, and the Partnership’s accumulated losses or its share of net liabilities were $8.1 million and $11.2 million, respectively, as of June 30, 2017 and December 31, 2016. The Partnership’s carrying value for SRV Joint Gas Two Ltd., consists of a receivable for the advances of $1.6 million and $3.3 million, respectively, and the Partnership’s accumulated losses or its share of net liabilities were $11.4 million and $14.7 million, respectively, as of June 30, 2017 and December 31, 2016. The major reason that the Partnership’s accumulated losses in the joint ventures are net liabilities is due to the fair value adjustments for the interest rate swaps recorded as liabilities on the combined balance sheets of SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd. The maximum exposure to loss is the carrying value of the receivables, which is subordinated to the joint ventures’ long-term bank debt, the investments in the joint ventures (accumulated losses), as the shares are pledged as security for the joint ventures’ long-term bank debt and Höegh LNG’s commitment under long-term bank loan agreements to fund its share of drydocking costs and remarketing efforts in the event of an early termination of the charters. Dividend distributions require a) agreement of the other joint venture owners; b) fulfilment of requirements of the long-term bank loans; c) and under Cayman Islands law may be paid out of profits or capital reserves subject to the joint venture being solvent after the distribution.

Significant accounting policies

The accounting policies used in the preparation of the unaudited condensed interim consolidated financial statements are consistent with those applied in the audited financial statements for the year ended December 31, 2016 included in the Partnership’s Annual Report, except as described below:

F-11

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

Colombian tax paid directly by charterer: Under terms of the contracts for the Höegh Grace (see note 4), the charterer in Colombia pays the full invoiced amount for the time charter to the Partnership’s subsidiaries. In addition, the charterer pays certain taxes directly to the Colombian tax authorities on behalf of the Partnership’s subsidiaries. The tax payments are a mechanism in Colombia for advance collection of income taxes for the Höegh LNG Colombia S.A.S and a final income tax on Colombian source income for Höegh LNG FSRU IV Ltd.

The Partnership concluded these third party payments to the tax authorities represent income taxes that must be accounted for under the US GAAP guidance for income taxes. As a result, the amount of taxes paid by the charterer is recorded as a component of time charter revenues and current income tax expense. The non-cash time charter revenues and non-cash income tax expense (note 8) was $432 and $432, respectively, for the three and six months ended June 30, 2017 and are separately disclosed in the consolidated statement of cash flows.

Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard, Revenue from Contracts with Customers, as subsequently updated by the FASB. Under the new standard, an entity must identify performance obligations and the transaction price in a contract, and allocate the transaction price to specific performance obligations to recognized revenue when the obligations are completed. Revenue for most contracts with customers will be recognized when promised goods or services are transferred to customers in an amount that reflects consideration that the entity expects to be entitled, subject to certain limitations. Under the new standard, additional qualitative and quantitative disclosures are required. The scope of this guidance does not apply to leases, financial instruments, guarantees and certain non-monetary transactions. However, the scope of the guidance does apply to the allocation of the transaction price to lease elements and non-lease elements. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Partnership made an initial assessment in 2016 of the impact of this standard on its contracts for evaluating potential material effects of this standard on its consolidated financial statements when adopted. The most significant implementation matters identified for the Partnership involved the allocation of the contract consideration, subject to certain limitations, to the lease element, covered by other guidance, and the non-lease or service element for which this guidance applies. At the FASB’s meeting on June 21, 2017, the FASB answered an implementation question related to the allocation of contract consideration to revenue and lease components, noting that it did not intend for an entity to revisit the allocation of contract consideration to lease components when it adopts the new revenue standard. Based upon the analysis to date and the clarification by the FASB, the Partnership does not expect material effects on the timing or amounts of revenue recognized under the guidance of this standard. The Partnership is in the process of completing a detailed analysis on a contract by contract basis of the implementation of the standard and is evaluating the impact of disclosure requirements. The Partnership will implement the standard on January 1, 2018 and expects to apply the modified retrospective approach with the cumulative effect of initially applying the standard as an adjustment to the opening balance of equity.

In February 2016, the FASB issued revised guidance for leasing, Leases. The objective is to establish the principles that lessors and lessees shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The Partnership is the lessor for the time charters for its FSRUs. Accounting by a lessor is largely unchanged from the previous standard. The Partnership does not have any material leased assets. A lessee will be required to recognize in its balance sheet a lease liability to make lease payments and a right-of-use asset. The standard provides for practical expedients in implementing the standard under the modified retrospective approach. The practical expedients will, in effect, allow an entity to continue to account for leases that commence before the effective date in accordance with the previous standard, unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases. The standard is effective for annual periods beginning after December 15, 2018, and including interim periods within those annual periods. Early adoption is permitted. The Partnership expects to apply the modified retrospective approach and does not expect material effects on the accounting for leases applied in the consolidated financial statements. The Partnership is currently assessing the impact of the disclosure requirements will have on the consolidated financial statements.

Refer to the audited consolidated financial statements for the year ended December 31, 2016 in our Annual Report for additional information on recent accounting pronouncements.

There are no accounting pronouncements effective for the period, whose adoption had a material impact on the consolidated financial statements in the current period.

F-12

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

3. Formation transactions and Initial Public Offering

During August 2014, the following transactions in connection with the transfer of equity interests, shareholder loans and promissory notes and accrued interest to the Partnership and the IPO occurred:

Capital contribution

Höegh LNG contributed the following to the Partnership:

(i)

Its interests in Hoegh LNG Lampung Pte. Ltd., PT Hoegh LNG Lampung, SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd.;

(ii)

Its shareholder loans made by Höegh LNG to each of SRV Joint Gas Ltd. and SRV Joint Gas Two Ltd., in part to finance the operations of such joint ventures;

(iii)

Its receivables for the $40 million promissory note due to Höegh LNG as well as accrued interest on such note and two other promissory notes relating to Hoegh LNG Lampung Pte. Ltd.;

These transactions were accounted for as a capital contribution by Höegh LNG to the Partnership.

Recapitalization of the Partnership

(i)

The Partnership issued to Höegh LNG 2,116,060 common units and 13,156,060 subordinated units and 100% of incentive distribution rights (“IDRs”), which entitle Höegh LNG to increasing percentages of the cash the Partnership distributes in excess of $0.388125 per unit per quarter.

(ii)

The Partnership issued to Höegh LNG GP LLC, a wholly owned subsidiary of Höegh LNG, a non-economic general partner interest in the Partnership.

Initial Public Offering

(i)

The Partnership issued and sold through the underwriters to the public 11,040,000 common units (including 1,440,000 common units exercised pursuant to the underwriters’ option to purchase additional common units), representing approximately 42% limited partnership interest in the Partnership. The common units were sold for $20.00 per unit resulting in gross proceeds of $220.8 million. The net proceeds of the offering were approximately $203.5 million. Net proceeds is after deduction of underwriters’ discounts, structuring fees and reimbursements and the incremental direct costs attributable to the IPO that were deferred and charged against the proceeds of the offering.

(ii)

The Partnership applied the net proceeds of the offering as follows: (i) $140 million to make a loan to Höegh LNG in exchange for a note bearing interest at a rate of 5.88% per annum, (ii) $20 million for general partnership purposes and (iii) the remainder of approximately $43.5 million to make a cash distribution to Höegh LNG.

F-13

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

At the completion of the IPO, Höegh LNG owned 2,116,060 common units and 13,156,060 subordinated units, representing an approximate 58% limited partnership interest in the Partnership.

Agreements

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

(i)

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

(ii)

An omnibus agreement with Höegh LNG, the general partner, and Höegh LNG Partners Operating LLC governing, among other things:

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

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

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

(iii)

An administrative services agreement with Höegh LNG Services Ltd., UK (“Höegh UK”), pursuant to which Höegh UK provides certain administrative services to the Partnership; and

(iv)

Höegh UK has entered into administrative services agreements with Höegh LNG AS (“Höegh Norway”) and Leif Höegh (U.K.) Limited, pursuant to which Höegh Norway and Leif Höegh (U.K.) Limited provide Höegh UK certain administrative services. Additionally, the operating company has entered into an administrative services agreement with Leif Höegh (U.K.) Limited to allow Leif Höegh (U.K.) Limited to provide services directly to Höegh LNG Partners Operating LLC.

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

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

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

F-14

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

4. Business combinations

On January 3, 2017, the Partnership closed the acquisition of a 51% ownership interest in Höegh LNG Colombia Holding Ltd., the owner of the entities that own and operate Höegh Grace pursuant to a purchase, sale and contribution agreement that the Partnership entered into with Höegh LNG on December 1, 2016. The cash consideration was $91.8 million, excluding the working capital adjustment. The working capital adjustment was $0.4 million.

In December 2016, the Partnership sold 6,588,389 common units, representing limited partner interests in an underwritten public offering. The Partnership's net proceeds from the public offering were $111.5 million. The Partnership used $91.8 million of the net proceeds as cash consideration to acquire the 51% ownership interest in the Höegh Grace entities on January 3, 2017. During December 2016, net proceeds of $12.6 million and $6.6 million was used to repay part of the seller’s credit note and to settle the working capital adjustment, respectively, related to the 2015 acquisition of the Höegh Gallant. During the second quarter of 2017, the Partnership paid the working capital adjustment of $0.4 million.

The Höegh Grace was constructed by Hyundai Heavy Industries Co., Ltd. (“HHI”) and was delivered to Höegh LNG in March 2016.

On November 1, 2014, Höegh LNG FSRU IV Ltd., a Cayman Islands company, that owns the Höegh Grace, entered into an International Leasing Agreement (“ILA”) with SPEC for the lease of the Höegh Grace. The Höegh Grace will serve as a LNG import terminal in Cartagena, on the Atlantic coast of Colombia. The initial term of the lease is 20 years. However, the Charterer has an unconditional option to cancel the lease after 10 and 15 years. As a result, non cancellable lease period is for 10 years. The lease commenced in December 2016. On November 1, 2014 Höegh LNG also entered into an Operation and Service Agreement (“OSA”) with SPEC to operate and provide certain services for the Höegh Grace for SPEC for the duration of the ILA.

Under terms of the Höegh LNG Colombia Holding Ltd.’s memorandum and articles of association, the Partnership has the power to make key operating decisions considered to be most significant to the Höegh Grace entities and, therefore, has control over the Höegh Grace entities through the Partnership’s ownership of the equity interest of Höegh LNG Colombia Holding Ltd. As a result, the Partnership has accounted for the acquisition of the 51% interest in Höegh LNG Colombia Holding Ltd. as a business combination. On January 1, 2017, the Partnership entered an agreement with Höegh LNG, under which Höegh LNG granted to the Partnership the authority to make decisions over the operations of Höegh LNG Colombia Holding Ltd. from January 1, 2017 to the closing date of the acquisition. As a result, the Partnership has recorded the results of operations of the Höegh Grace entities in its consolidated income statement as of January 1, 2017.

The preliminary purchase price of the acquisition has been allocated to the identifiable fair values allocated to each class of identifiable assets acquired.

Under the purchase method of accounting when control is obtained, the non-controlling interest is required to be measured at its fair value at the acquisition date. Management has concluded that the pro-rata values of the controlling and non-controlling interests are the same. The fair value of the consideration transferred and the fair value of the 49% interest of the non-controlling interest has been allocated to assets acquired and liabilities assumed as of the acquisition date with any remaining unallocated amount recognized as goodwill.

F-15

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

The following summarizes the fair values of assets and liabilities assumed:

(in thousands of US dollars)
Consideration
Use of proceeds from public offering (issuance of 6,588,389 common units to the public)	$	91,768
Working capital adjustment		407
Total consideration				$	92,175

Assets acquired
Cash and cash equivalents		3,774
Restricted cash		19
Trade receivables		4,446
Prepaid expenses and other receivables		51
Vessel		357,138
Other equipment		30
Intangibles: Above market time charter		11,760
Other long term assets		830
Total long term assets					378,048
Liabilities assumed
Trade payables		(193	)
Amounts due to owners and affiliates		(622	)
Accrued liabilities and other payables		(1,569	)
Total long term debt		(192,286	)
Derivative instruments		(2,642	)
Total liabilities assumed					(197,312	)
Total identifiable net assets					180,736

Non-controlling interest in total identifiable net assets					88,561

Acquired share in total identifiable net asset				$	92,175

F-16

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

One contract related intangible has been identified. The Partnership recorded $11.8 million for the favorable time charter contract with SPEC. The intangible for the above market value of the time charter contract associated with the Höegh Grace is amortized to time charter revenue on a straight line basis calculated per day over the remaining non-cancellable charter term of approximately 9.5 years as of the acquisition date.

The premium arising in a business combination for the difference in the fair value of the debt assumed compared to the outstanding principal is reported in the consolidated balance sheet as a direct adjustment to the outstanding principal of the related debt and amortized on an effective interest rate method over the term of relevant loan. Amortization of fair value of the debt assumed is included as a component of interest expense.

The fair value of assets acquired and the liabilities assumed approximated the total consideration; therefore, no residual amount has been recognized as goodwill for the acquisition.

Total revenues of $25.4 million and net income of $11.3 million have been included in the Partnership’s consolidated statement of income from the acquisition date of January 1, 2017 through June 30, 2017.

The following unaudited pro forma information assumes the acquisition of the Höegh Grace entities occurred as of January 1, 2016. The unaudited information is for illustration purposes only. The Höegh Grace was delivered from HHI on March 30, 2016 and did not begin operations under the time charter until December 2016. Periods prior to December 2016 reflect only costs incurred during the construction and pre-contract period of operations and would not be indicative of the future results of operations or the cash flows that the Partnership will consolidate going forward.

(in thousands of U.S. dollars)	Year ended December 31, 2016
Total revenue	$	96,526
Net income (loss)		23,382
Non-controlling interest in net income (loss)		(8,818	)
Partners’ interest in net income (loss)	$	32,200

F-17

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

5. Segment information

For the three and six months ended June 30, 2017, Majority held FSRUs includes the direct financing lease related to the PGN FSRU Lampung and the operating leases related to the Höegh Gallant and Höegh Grace. For the three and six months ended June 30, 2016, Majority held FSRUs includes the direct financing lease related to the PGN FSRU Lampung and the operating lease related to the Höegh Gallant.

As of June 30, 2017 and 2016, Joint venture FSRUs include two 50% owned FSRUs, the Neptune and the GDF Suez 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) non-controlling interest in Segment EBITDA is subtracted in the segment note to reflect the Partnership’s interest in Segment EBITDA as the Partnership’s segment profit measure, Segment EBITDA. 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. On January 1, 2017, the Partnership began consolidating its acquired 51% interest in the Höegh Grace entities. Since the Partnership obtained control of the Höegh Grace entities, it consolidates 100% of the revenues, expenses, assets and liabilities of the Höegh Grace entities and the interest not owned by the Partnership is reflected as non-controlling interest in net income and non-controlling interest in total equity under US GAAP. Management monitors the results of operations of the Höegh Grace entities based on the Partnership’s 51% interest in Segment EBITDA of such entities and, therefore, subtracts the non-controlling interest in Segment EBITDA to present Segment EBITDA. The adjustment to non-controlling interest in Segment EBITDA is reversed to reconcile to operating income and net income in the segment presentation below.

In time charters, the charterer, not the Partnership, controls the choice of locations or routes the FSRUs serve. Accordingly, the presentation of information by geographical region is not meaningful. The following tables include the results for the segments for the three and six months ended June 30, 2017 and 2016.

F-18

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

	Three months ended June 30, 2017
				Joint venture
	Majority			FSRUs						Total
	held			(proportional						Segment			Elimin-				Consolidated
(in thousands of U.S. dollars)	FSRUs			consolidation)			Other			reporting			ations				reporting
Time charter revenues	$	35,024			10,225			—			45,249			(10,225	)	(1)	$	35,024
Total revenues		35,024			10,225			—			45,249							35,024
Operating expenses		(6,693	)		(1,984	)		(1,400	)		(10,077	)		1,984		(1)		(8,093	)
Construction contract expenses		(151	)		—			—			(151	)						(151	)
Equity in earnings (losses) of joint ventures		—			—			—			—			1,551		(1)		1,551
Less: Non-controlling interest in Segment EBITDA		(5,423	)		—			—			(5,423	)		5,423		(2)		—
Segment EBITDA		22,757			8,241			(1,400	)		29,598
Add: Non-controlling interest in Segment EBITDA		5,423			—			—			5,423			(5,423	)	(2)		—
Depreciation and amortization		(5,263	)		(2,476	)		—			(7,739	)		2,476		(1)		(5,263	)
Operating income (loss)		22,917			5,765			(1,400	)		27,282							23,068
Gain (loss) on derivative instruments		247			(785	)		—			(538	)		785		(1)		247
Other financial income (expense), net		(8,028	)		(3,429	)		(1,033	)		(12,490	)		3,429		(1)		(9,061	)
Income (loss) before tax		15,136			1,551			(2,433	)		14,254			—				14,254
Income tax expense		(2,042	)		—			—			(2,042	)		—				(2,042	)
Net income (loss)	$	13,094			1,551			(2,433	)		12,212			—			$	12,212
Non-controlling interest in net income		2,812			—			—			2,812							2,812
Partners' interest in net income (loss)	$	10,282			1,551			(2,433	)		9,400			—			$	9,400

(1)

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

(2)

Eliminations reverse the adjustment to Non-controlling interest in Segment EBITDA included for Segment EBITDA and the adjustment to reverse the Non-controlling interest in Segment EBITDA to reconcile to operating income and net income.

F-19

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

	Three months ended June 30, 2016
(in thousands of U.S. dollars)	Majority held FSRUs			Joint venture FSRUs (proportional consolidation)			Other			Total Segment reporting			Elimin- ations (1)			Consolidated reporting
Time charter revenues	$	22,785			10,379			—			33,164			(10,379	)	$	22,785
Total revenues		22,785			10,379			—			33,164						22,785
Operating expenses		(5,123	)		(1,908	)		(1,524	)		(8,555	)		1,908			(6,647	)
Construction contract expenses		(315	)		—			—			(315	)					(315	)
Equity in earnings (losses) of joint ventures		—			—			—			—			(1,866	)		(1,866	)
Segment EBITDA		17,347			8,471			(1,524	)		24,294
Depreciation and amortization		(2,636	)		(2,376	)		—			(5,012	)		2,376			(2,636	)
Operating income (loss)		14,711			6,095			(1,524	)		19,282						11,321
Gain (loss) on derivative instruments		326			(4,174	)		—			(3,848	)		4,174			326
Other financial income (expense), net		(6,048	)		(3,787	)		(1,036	)		(10,871	)		3,787			(7,084	)
Income (loss) before tax		8,989			(1,866	)		(2,560	)		4,563			—			4,563
Income tax expense		(500	)		—			(1	)		(501	)		—			(501	)
Net income (loss)	$	8,489			(1,866	)		(2,561	)		4,062			—		$	4,062

(1)

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

F-20

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

	Six months ended June 30, 2017
(in thousands of U.S. dollars)	Majority held FSRUs			Joint venture FSRUs (proportional consolidation)			Other			Total Segment reporting			Elimin- ations				Consolidated reporting
Time charter revenues	$	70,101			21,149			—			91,250			(21,149	)	(1)	$	70,101
Total revenues		70,101			21,149			—			91,250							70,101
Operating expenses		(13,955	)		(4,603	)		(3,072	)		(21,630	)		4,603		(1)		(17,027	)
Construction contract expenses		(151	)		—			—			(151	)						(151	)
Equity in earnings (losses) of joint ventures		—			—			—			—			6,360		(1)		6,360
Less: Non-controlling interest in Segment EBITDA		(10,417	)		—			—			(10,417	)		10,417		(2)		—
Segment EBITDA		45,578			16,546			(3,072	)		59,052
Add: Non-controlling interest in Segment EBITDA		10,417			—			—			10,417			(10,417	)	(2)		—
Depreciation and amortization		(10,526	)		(4,916	)		—			(15,442	)		4,916		(1)		(10,526	)
Operating income (loss)		45,469			11,630			(3,072	)		54,027							48,757
Gain (loss) on derivative instruments		910			1,711			—			2,621			(1,711	)	(1)		910
Other financial income (expense), net		(15,483	)		(6,981	)		(1,986	)		(24,450	)		6,981		(1)		(17,469	)
Income (loss) before tax		30,896			6,360			(5,058	)		32,198			—				32,198
Income tax expense		(3,797	)		—			—			(3,797	)		—				(3,797	)
Net income (loss)	$	27,099			6,360			(5,058	)		28,401			—			$	28,401
Non-controlling interest in net income		5,556			—			—			5,556							5,556
Partners’ interest in net income (loss)	$	21,543			6,360			(5,058	)		22,845			—			$	22,845

(1)

(2)

F-21

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

	As of June 30, 2017
				Joint venture
	Majority			FSRUs				Total
	held			(proportional				Segment			Elimin-				Consolidated
(in thousands of U.S. dollars)	FSRUs			consolidation)		Other		reporting			ations				reporting
Vessels, net of accumulated depreciation	$	689,241			270,382		—		959,623			(270,382	)	(1)	$	689,241
Net investment in direct financing lease		288,407			—		—		288,407			—				288,407
Goodwill		251			—		—		251			—				251
Advances to joint ventures		—			—		4,623		4,623			—				4,623
Total assets		1,061,914			290,739		11,699		1,364,352			(290,739	)	(1)		1,073,613
Accumulated losses of joint ventures		—			—		50		50			(19,576	)	(1)		(19,526	)
Expenditures for vessels & equipment		—			365		—		365			(365	)	(2)		—
Expenditures for drydocking		—			—		—		—			—		(2)		—
Principal repayment direct financing lease		1,704			—		—		1,704			—				1,704
Amortization of above market contract		1,801			—		—		1,801			—				1,801
Non-controlling interest: amortization of above market contract	$	(299	)		—		—		(299	)		—			$	—

(1)

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

(2)

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

F-22

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

	Six months ended June 30, 2016
				Joint venture
	Majority			FSRUs						Total
	held			(proportional						Segment			Elimin-			Consolidated
(in thousands of U.S. dollars)	FSRUs			consolidation)			Other			reporting			ations (1)			reporting
Time charter revenues	$	44,454			21,117			—			65,571			(21,117	)	$	44,454
Total revenues		44,454			21,117			—			65,571						44,454
Operating expenses		(9,705	)		(4,101	)		(3,029	)		(16,835	)		4,101			(12,734	)
Construction contract expenses		(315	)		—			—			(315	)					(315	)
Equity in earnings (losses) of joint ventures		—			—			—			—			(8,575	)		(8,575	)
Segment EBITDA		34,434			17,016			(3,029	)		48,421
Depreciation and amortization		(5,265	)		(4,755	)		—			(10,020	)		4,755			(5,265	)
Operating income (loss)		29,169			12,261			(3,029	)		38,401						17,565
Gain (loss) on derivative instruments		662			(13,166	)		—			(12,504	)		13,166			662
Other financial income (expense), net		(12,220	)		(7,670	)		(2,036	)		(21,926	)		7,670			(14,256	)
Income (loss) before tax		17,611			(8,575	)		(5,065	)		3,971			—			3,971
Income tax expense		(946	)		—			(3	)		(949	)		—			(949	)
Net income (loss)	$	16,665			(8,575	)		(5,068	)		3,022			—		$	3,022

(1)

F-23

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

	As of December 31, 2016
			Joint venture
	Majority		FSRUs				Total
	held		(proportional				Segment		Elimin-				Consolidated
(in thousands of U.S. dollars)	FSRUs		consolidation)		Other		reporting		ations				reporting
Vessels, net of accumulated depreciation	$	342,591		274,932		—		617,523		(274,932	)	(1)	$	342,591
Net investment in direct financing lease		290,111		—		—		290,111		—				290,111
Goodwill		251		—		—		251		—				251
Advances to joint ventures		—		—		7,218		7,218		—				7,218
Total assets		698,869		298,712		111,598		1,109,179		(298,712	)	(1)		810,467
Accumulated losses of joint ventures		—		—		50		50		(25,936	)	(1)		(25,886	)
Expenditures for vessels & equipment		537		783		—		1,320		(783	)	(2)		537
Expenditures for drydocking		—		135		—		135		(135	)	(2)		—
Principal repayment direct financing lease		3,192		—		—		3,192		—				3,192
Amortization of above market contract	$	2,405		—		—		2,405		—			$	2,405

(1)

(2)

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

F-24

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

6. Construction contract expenses

The Mooring is an offshore installation that is used to moor the PGN FSRU Lampung to offload natural gas into an offshore pipe that transports the gas to a land terminal for the charterer, PGN LNG. The Mooring was constructed on behalf of, and was sold to, PGN LNG and was accounted for using the percentage of completion method. Under the percentage of completion method, construction contract revenues and expenses of the Mooring were reflected in the consolidated and combined carve-out statements of income until December 31, 2014 when Mooring project was completed. As of December 31, 2014, the Partnership recorded a warranty allowance of $2.0 million to construction contract expenses for technical issues that required the replacement of equipment parts for the Mooring. During the second quarter of 2016, the final replacement parts were ordered and an updated estimate was prepared for the installation cost to complete the warranty replacements. As a result, an additional warranty provision of $0.3 million was recorded as of June 30, 2016. The warranty work, including the installation of the replacement parts, was completed in the second quarter of 2017. The actual cost exceeded the remaining warranty allowance resulting in additional expense of $0.2 million as of June 30, 2017. The Partnership anticipates that part of the costs incurred for the remaining warranty replacements, net of deductible amounts, will be recoverable under the Partnership’s insurance coverage. An insurance claim is in the process of being filed with the insurance carrier since the final costs have been incurred. The insurance claims can only be recognized in the consolidated financial statements when the claims submitted are probable of recovery. The Partnership is indemnified by Höegh LNG for all warranty provisions at the time the costs are incurred, subject to repayment to the extent recovered by insurance. Refer to notes 14 and 17.

7. Financial income (expense)

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

	Three months ended						Six months ended
	June 30,						June 30,
(in thousands of U.S. dollars)	2017			2016			2017			2016
Interest income	$	113			232			243		$	505
Interest expense:
Interest expense		(7,301	)		(5,533	)		(14,561	)		(11,115	)
Commitment fees		(241	)		(301	)		(504	)		(602	)
Amortization of debt issuance cost and fair value of debt assumed		(210	)		(520	)		(423	)		(1,043	)
Total interest expense		(7,752	)		(6,354	)		(15,488	)		(12,760	)
Gain (loss) on derivative instruments		247			326			910			662
Other items, net:
Foreign exchange gain (loss)		(811	)		(28	)		(944	)		(365	)
Bank charges, fees and other		(29	)		(11	)		(52	)		(91	)
Withholding tax on interest expense and other		(582	)		(923	)		(1,228	)		(1,545	)
Total other items, net		(1,422	)		(962	)		(2,224	)		(2,001	)
Total financial income (expense), net	$	(8,814	)		(6,758	)		(16,559	)	$	(13,594	)

F-25

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

8. Income tax

The Partnership is not subject to Marshall Islands corporate income taxes. The Partnership is subject to tax for earnings of its subsidiaries incorporated in Singapore, Indonesia, Colombia, Cyprus and the UK and certain Colombian source income. The income tax expense recorded in the consolidated income statements was $2,042 and $501 for the three months ended June 30, 2017 and 2016, respectively, and $ 3,797 and $949 for the six months ended June 30, 2017 and 2016, respectively. For the three and six months ended June 30, 2017, the income tax expense largely related to the subsidiaries in Singapore, Indonesia and Colombia. The income tax expense for the three and six months ended June 30, 2016 mainly related to the subsidiaries in Singapore and Indonesia. The Singapore subsidiary’s taxable income mainly arises from internal interest income. The charterer in Colombia pays certain taxes directly to the Colombian tax authorities on behalf of the Partnership’s subsidiaries that own and operate the Höegh Grace. The tax payments are a mechanism for advance collection of income taxes for the Colombian subsidiary and a final income tax on Colombian source income for the non-Colombian subsidiary. The Partnership concluded these third party payments to the tax authorities represent income taxes that must be accounted for under the US GAAP guidance for income taxes. The amount of non-cash income tax expense was $432 for the three and six-months ended June 30, 2017.

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 and six months ended June 30, 2017, the estimated generation of taxable income resulted in the utilization of $65 and $224, respectively, of tax loss carry forward in Indonesia which was not recognized due to the uncertainty of this tax position. As a result, a long-term income tax payable of $224 was recorded for the uncertain tax position for the six-month period ended June 30, 2017. Refer to note 17.

F-26

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

9. Advances to joint ventures

	As of
	June 30,		December 31,
(in thousands of U.S. dollars)	2017		2016
Current portion of advances to joint ventures	$	4,623	$	6,275
Long-term advances to joint ventures		—		943
Advances/shareholder loans to joint ventures	$	4,623	$	7,218

The Partnership had advances of $3.0 million and $3.9 million due from SRV Joint Gas Ltd. as of June 30, 2017 and December 31, 2016, respectively. The Partnership had advances of $1.6 million and $3.3 million due from SRV Joint Gas Two Ltd. as of June 30, 2017 and December 31, 2016, respectively. The joint ventures have repaid the original principal of all shareholder loans and all of the payments for the three and six months ended June 30, 2017 represent payments of interest, including accrued interest repaid at the end of the loans. Interest payments are treated as return on investment and included as a component of net cash provided by operating activities in the consolidated statements of cash flows.

10. Vessels, net

				Dry-
(in thousands of U.S. dollars)	Vessel			docking			Total
Historical cost December 31, 2015	$	352,433			3,267		$	355,700
Additions		—			—			—
Historical cost December 31, 2016		352,433			3,267			355,700
Depreciation for the year		(9,687	)		(800	)		(10,487	)
Accumulated depreciation December 31, 2016		(12,109	)		(1,000	)		(13,109	)
Vessels, net December 31, 2016		340,324			2,267			342,591

Historical cost December 31, 2016		352,433			3,267			355,700
Additions (note 4)		353,738			3,400			357,138
Historical cost June 30, 2017		706,171			6,667			712,838
Depreciation for the period		(9,688	)		(800	)		(10,488	)
Accumulated depreciation June 30, 2017		(21,797	)		(1,800	)		(23,597	)
Vessels, net June 30, 2017	$	684,374			4,867		$	689,241

F-27

HÖEGH LNG PARTNERS LP

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS