Edgar Filing: Capital Product Partners L.P.

Operating and Financial Review and Prospects.

On March 27 and April 30, 2008, respectively, Capital Product Partners L.P. acquired the shares of the vessel owning companies of the Motor Tankers (“M/T”) Amore Mio II and Aristofanis from Capital Maritime and Trading Corp (“Capital Maritime”). In accordance with SFAS No. 141 “Business Combinations”, these transactions are accounted for as a combination of entities under common control, in a manner similar to a pooling of interests. In accordance with SEC Staff Interpretations of APB 16 “Business Combinations”, where a transaction has occurred that will be accounted for as a pooling of interests and post-consummation period results have not been published, financial statements giving effect to the pooling should be presented in transactional filings or in voluntary supplemental filings as “supplemental financial statements.” Accordingly, our supplemental consolidated and predecessor combined financial statements for the fiscal years ended December 31, 2007, 2006 and 2005 (the “Supplemental Financial Statements”) reflect the retroactive adjustment of the financial statements included in our Annual Report on Form 20-F for the year ended December 31, 2007 (the “Annual Report”) to reflect the operations of the M/T Amore Mio II and the M/T Aristofanis as though the acquisition of shares of the relevant vessel owning companies had occurred on the dates such vessels were acquired by Capital Maritime.

You should read the following discussion of our financial condition and results of operations in conjunction with the Supplemental Financial Statements included herein. Among other things, the Supplemental Financial Statements include more detailed information regarding the basis of presentation for the following information. The Supplemental Financial Statements have been prepared in accordance with U.S. GAAP and are presented in U.S. Dollars.

A. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are an international owner of product tankers formed in January 2007 by Capital Maritime, an international shipping company with a long history of operating and investing in the shipping market. Our fleet currently consists of 18 double-hull, high specification tankers with an average age of approximately 2.4 years. Eight of our vessels were transferred to us by Capital Maritime at the time of our initial public offering in April 2007 (the “Offering”). Concurrently with the Offering, we also agreed to purchase an additional seven newbuildings from Capital Maritime delivered or scheduled for delivery during 2007 and 2008 at a fixed price, four of which had been delivered as of December 31, 2007. These four Ice Class 1A IMO II/III newbuilding sister vessels were delivered between May and September 2007. Between January and August 2008, we took delivery of three newbuilding 51,000 dwt MR IMO II/III chemical/product tanker sister vessels which we contracted to acquire from Capital Maritime at the time of our Offering. In September 2007, March and April 2008 we also acquired three additional vessels from Capital Maritime which we had not previously agreed to purchase: the M/T Attikos, a 12,000 dwt, 2005 built product tanker, the M/T Amore Mio II, a 159,982 dwt, 2001 built tanker and the M/T Aristofanis, a 12,000 dwt, 2005 built product tanker.

Our primary business objective is to provide our unitholders with steadily rising distributions per unit over the long-term. Our growth strategy focuses on maintaining and growing our cash flows, continuing to grow our product tanker fleet and maintaining and building on our ability to meet rigorous industry and regulatory safety standards. We believe that the combination of the medium to long-term nature of our charters and our agreement with Capital Ship Management for the commercial and technical management of our vessels, which provides for a fixed management fee for an initial term of approximately five years from when we take delivery of each vessel, will provide us with a strong base of stable cash flows in the medium term. We intend to continue to make strategic acquisitions and leverage the expertise and reputation of Capital Maritime in a prudent manner that is accretive to our unitholders and to long-term distribution growth.

Our Initial Public Offering

On April 3, 2007, we completed our Offering on the Nasdaq Global Market of 13,512,500 common units at a price of $21.50 per unit which included 1,762,500 common units issued to the underwriters in connection with the exercise of their over-allotment option. The Offering also included 8,805,522 subordinated units issued to Capital Maritime and 455,470 general partner units issued to Capital GP L.L.C., our general partner, a wholly owned subsidiary of Capital Maritime. The net proceeds from the Offering were $270,472,956.0, including the proceeds from the exercise of the over-allotment option by the underwriters. We did not receive any proceeds from the sale of our common units. Capital Maritime used part of the proceeds from our Offering to repay the debt on the eight vessels that made up our fleet at the time of the Offering. Capital Maritime transferred its interest in the vessel-owning companies of these eight vessels to us at the time of the Offering. Capital Maritime also paid the offering expenses, underwriting discounts, selling commissions and brokerage fees incurred in connection with the Offering. As of December 31, 2007, Capital Maritime owned a 40.7% interest in us, including a 2% interest through its ownership of our general partner. Currently, Capital Maritime owns a 46.6% interest in us, including a 2% interest through its ownership of our general partner.

Potential Additional Vessels

Pursuant to our omnibus agreement with Capital Maritime, we have been granted a right of first offer to purchase up to an additional six vessels from Capital Maritime if they are fixed under charters of two or more years. Capital Maritime also owns or has on order a number of modern, double-hull, product and crude oil tankers of different sizes which we may potentially acquire in the event those vessels were fixed under charters of two or more years. Furthermore, we will continue to evaluate opportunities to acquire both newbuildings and second-hand vessels from Capital Maritime and from third parties as we seek to grow our fleet.

Historical Results of Operations

We commenced operations as an independent entity on April 4, 2007, at which time Capital Maritime transferred its interest in eight vessel-owning companies to us. Our historical results are not necessarily indicative of the results that may be expected in the future. Specifically, our Supplemental Financial Statements are not comparable, as our Offering and certain other transactions that occurred during 2007, including the delivery of four newbuildings, the acquisition of the M/T Attikos, the agreement we entered into with Capital Ship Management for the provision of management and administrative services to our fleet for a fixed fee and the new financing arrangements we entered into, have affected our results of operations. Furthermore, for the year ended December 31, 2006, only seven of the vessels in our current fleet had been delivered to Capital Maritime. Five of these vessels were delivered between April and November 2006 and were in operation for only a portion of the year. For the year ended December 31, 2005, only two vessels currently in our fleet had been delivered to Capital Maritime.

For more detail on the differences between our historical results and expected future results, please read “—Factors to Consider when Evaluating our Results” and “—Results of Operations” below.

Accounting for Deliveries of Vessels

All vessels we acquire or have acquired from Capital Maritime are or were transferred to us at historical cost and accounted for as a combination of entities under common control or a transfer of assets between entities under common control. All assets, liabilities and equity, other than the relevant vessel, related charter agreement and related permits, of these vessels’ ship-owning companies were retained by Capital Maritime.

At the time of our Offering, Capital Maritime contributed eight vessels to our fleet. Between May and September 2007 we acquired an additional five vessels from Capital Maritime for a total purchase price of $247.0 million. These five vessels have been recorded in our Supplemental Financial Statements at the amount of $166.1 million, which represents the net book value of the vessels as reflected in Capital Maritime’s consolidated financial statements at the time of transfer. We recognize transfers of assets between entities under common control at Capital Maritime’s basis in the assets contributed. The amount of the purchase price in excess of Capital Maritime’s basis in the assets, $80.9 million, was recognized as a reduction to partners’ capital and presented as a financing activity in the statement of cash flows. For additional information on how we have accounted for specific transfers of vessels please see Note 1 (Basis of Presentation and General Information) to our Supplemental Financial Statements included herein.

Our Charters

We generate revenues by charging our customers for the use of our vessels to transport their products. Historically, we have provided services to our customers under the following two types of contractual relationships:

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Time charters, which are contracts for the use of a vessel for a fixed period of time at a specified daily rate. With the exception of our time charters with Morgan Stanley Capital Group Inc., where we receive net daily rates, we are responsible for the payment of all commissions under our time charters. All other expenses related to time charter voyages are assumed by the charterers. Capital Ship Management, our manager, is generally responsible for commercial, technical, health and safety and other management services related to the vessels’ operation. With the exception of the time charter for the M/T Attikos and the M/T Aristofanis, all of our time charter agreements contain profit sharing arrangements. Profit sharing refers to an arrangement between owners and charterers to share, at a pre-determined percentage, voyage profit in excess of the basic hire rate.

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Bareboat charters, which are contracts pursuant to which the vessel owner provides the vessel to the charterer for a fixed period of time at a specified daily rate, and the charterer provides for all of the vessel’s operating expenses including crewing, repairs, maintenance, insurance, stores, lube oils and communication expenses in addition to the voyage costs (with the exception of commissions) and generally assumes all risk of operation.

Currently, all of the vessels in our fleet, including the vessels delivered or acquired in 2008, are under medium- to long-term time or bareboat charters of between two to 10 years, with an average remaining term of approximately 4.7. years commencing at the time of their delivery. In addition, of our 18 charter contracts, 14 are scheduled to expire on or after January 2010 and of our 12 time charters, 10 contain profit-sharing arrangements, including the three-year time charter of the M/T Amore Mio II, purchased in March 2008 from Capital Maritime.

All of our vessels are under charter contracts with BP Shipping Limited, Morgan Stanley Capital Group Inc., Trafigura Beheer B.V., Shell International Trading & Shipping Company Ltd. and subsidiaries of Overseas Shipholding Group Inc. For the year ended December 31, 2007, BP Shipping Limited and Morgan Stanley Capital Group Inc. accounted for 58% and 24% of our revenues, respectively, and 42% and 18% of our revenues for the year ended December 31, 2006, respectively. For the year ended December 31, 2006, Canterbury Tankers Inc., the charterer for the M/T Attikos, and Shell International Trading & Shipping Company Ltd., the charterer for the M/T Aristofanis, each represented 20% of the revenues of our predecessor. During 2008, we expect to derive the majority of our revenues from BP Shipping Limited, Morgan Stanley Capital Group Inc., and Overseas Shipholding Group Inc. In the future, as our fleet expands, we also expect to enter into charters with new charterers in order to maintain a portfolio that is diverse from a customer, geographic and maturity perspective. The M/T Amore Mio II, purchased in March 2008 from Capital Maritime, is also under time charter with BP Shipping Limited. We may in the future operate vessels in the spot market until the vessels have been chartered under appropriate medium to long-term charters.

Please read “Item 4: Business—Our Fleet”, “Item 4: Business—Our Charters” and “Item 4: Business—Profit Sharing Arrangements” in our Annual Report for additional details regarding the length, daily charter rate, information regarding the calculation of our profit share arrangements and description of our charters.

Factors Affecting Our Future Results of Operations

We believe the principal factors that will affect our future results of operations are the economic, regulatory, political and governmental conditions that affect the shipping industry generally and that affect conditions in countries and markets in which our vessels engage in business. Other key factors that will be fundamental to our business, future financial condition and results of operations include:

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the continuing strong demand for seaborne transportation services;

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supply of product and crude oil tankers and specifically the number of newbuildings entering the world tanker fleet each year;

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the successful implementation of our fleet expansion strategy, including taking delivery of our newbuildings on or about their scheduled delivery dates;

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the ability of Capital Maritime’s commercial and chartering operations to successfully employ our vessels at economically attractive rates, particularly as our fleet expands and our charters expire;

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our ability to benefit from new maritime regulations concerning the phase-out of single-hull vessels and the more restrictive regulations for the transport of certain products and cargoes;

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the effective and efficient technical management of our vessels;

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Capital Maritime’s ability to obtain and maintain major international oil company approvals and to satisfy their technical, health, safety and compliance standards; and

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the strength of and growth in the number of our customer relationships, especially with major international oil companies and major commodity traders.

In addition to the factors discussed above, we believe certain specific factors have impacted, and will continue to impact, our results of operations. These factors include:

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the charterhire earned by our vessels under time charters and bareboat charters;

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our access to capital required to acquire additional vessels and/or to implement our business strategy;

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our ability to sell vessels at prices we deem satisfactory;

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our level of debt and the related interest expense and amortization of principal; and

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the level of any distribution on our common units.

Please read “Risk Factors” in our Annual Report for a discussion of certain risks inherent in our business.

Factors to Consider When Evaluating Our Results

Our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected from any future period and our Supplemental Financial Statements and the financial statements of our predecessor are not comparable, principally for the following reasons:

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Supplemental Financial Statements. Our Supplemental Financial Statements for the year ended December 31, 2007 include the results of operations of the eight vessels comprising our fleet at the time of our Offering, the four vessels we had contracted to purchase from Capital Maritime which were delivered during 2007, and the M/T Attikos, the M/T Amore Mio II and the M/T Aristofanis, which were acquired from an entity under common control on September 24, 2007, March 27, 2008 and April 30, 2008, respectively. The Supplemental Financial Statements for 2006 and 2005 have also been retroactively adjusted to reflect the results of operations of the M/T Attikos and the M/T Aristofanis as if they were owned by us for the entire period from their delivery to Capital Maritime on January 20, 2005 and June 2, 2005, respectively.

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Limited Operations. The results of operations and cash flows presented in our audited Supplemental Financial Statements for the years ended December 31, 2007, 2006 and 2005 do not reflect operations of all the vessels comprising our fleet for the reporting period. The Supplemental Financial Statements for the year ended December 31, 2007 include operations of the M/T Attikos, the M/T Aristofanis and the five vessels from our initial fleet which had been delivered to Capital Maritime as of December 31, 2006. The remaining eight vessels which were acquired or delivered to us or to Capital Maritime between January and September of 2007, including the M/T Amore Mio II, are included in our results of operations and cash flows only as of their respective delivery dates. Supplemental Financial statements for the year ended December 31, 2006 include operations of five vessels which were in operation for only a part of the reporting period and the M/T Attikos and M/T Aristofanis which were in operation for the whole year. Supplemental Financial statements for the year ended December 31, 2005 include operations of the M/T Attikos and the M/T Aristofanis, which were in operation for the period from January 20, 2005 and June 2, 2005, respectively, to December 31, 2005. The three pre-contracted vessels we have taken delivery of during 2008 are not reflected in our Supplemental Financial Statements. Please read “—Accounting for Deliveries of Vessels” above and “—Different Statements of Income” below for a description of the financial treatment of vessel acquisitions.

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Different Sources of Revenues. A portion of the revenues generated during the years ended December 31, 2006 and December 31, 2005, and for the period ended April 3, 2007 was derived from charters with different terms than the charters that are currently in place.

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Different Structure of Operating Expenses. On April 3, 2007, we entered into a management agreement with Capital Ship Management pursuant to which Capital Ship Management agreed to provide commercial and technical management services to us for an initial term of approximately five years from when we take delivery of each vessel. Under the agreement we pay Capital Ship Management a fixed daily fee of $5,500 per vessel (except for the M/T Amore Mio II for which we pay $8,500) for our time chartered vessels which covers vessel operating expenses, including crewing, repairs and maintenance, insurance and the cost of the next scheduled special/intermediate surveys for each vessel, and related drydocking, as applicable, and a fixed daily fee of $250 per bareboat chartered vessel. Operating expenses for the year ended December 31, 2006 and for the period ended April 3, 2007 for the initial vessels, for the period ended September 23, 2007 for the M/T Attikos, and for the year ended December 31, 2007 for the M/T Amore Mio II and the M/T Aristofanis represent actual costs incurred by the vessel-owning subsidiaries and Capital Ship Management in the operation of the vessels that were operated as part of Capital Maritime’s fleet.

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Different Structure of General and Administrative Expenses. Since our Offering we have incurred certain general and administrative expenses as a publicly traded limited partnership that we had not previously incurred. For the years ended December 31, 2006 and 2005, we did not incur any similar general and administrative expenses.

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Different Financing Arrangements. The vessels delivered to Capital Maritime during 2005, 2006 and 2007 were purchased under financing arrangements with terms that differ from those of the $370.0 million credit facility we entered into at the time of the Offering as well as from those of the $350.0 million credit facility we entered into in March 2008 and which we used to finance the acquisition of the additional vessels we have purchased from Capital Maritime since our Offering. Importantly, under these credit facilities, we are not required to make repayments of principal before June 2012 and March 2013, respectively. In addition, the historical bank debt bore interest at floating rates while we have entered into interest rate swap agreements to fix the LIBOR portion of our interest rate in connection with the debt drawn down under our credit facilities. For a description of our non-amortizing revolving credit facilities, please read “—Liquidity and Capital Resources—Revolving Credit Facilities” below.

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The Size of our Fleet Continues to Change. At the time of our Offering, our fleet consisted of eight vessels and we contracted to purchase an additional seven vessels from Capital Maritime. Between May and September 2007 we took delivery of four of the contracted vessels and also acquired the M/T Attikos from Capital Maritime. All of the vessels delivered between May and September 2007 were under long-term charters at the time of their delivery. The remaining three contracted vessels were delivered between January and August 2008. During the first half of 2008 we acquired two additional vessels, the M/T Amore Mio II and the M/T Aristofanis, from Capital Maritime which we had not contracted to purchase at the time of our Offering and we intend to continue to make strategic acquisitions in a prudent manner that is accretive to our distributable cash flow per unit.

Results of Operations

Because we have a limited operating history, with the years ended December 31, 2007, and December 31, 2006 being the only periods with meaningful operations, other period-to-period comparisons of our results of operations are not yet possible and may not be meaningful in the near future.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Revenues

Time and bareboat charter revenues amounted to approximately $86.5 million for the year ended December 31, 2007, as compared to $24.6 million for the year ended December 31, 2006 primarily due to the higher number of vessels in our fleet. The revenues for the year ended December 31, 2007 have been retroactively adjusted and reflect revenues from the M/T Amore Mio II and the M/T Aristofanis, respectively, for the periods that they were part of Capital Maritime’s fleet.

Time and bareboat charter revenues are mainly comprised of the charter hire received from unaffiliated third-party customers. Time and bareboat charter revenues are affected by daily hire rates, the number of days our vessels operate and the overall number of vessels in our fleet. For an explanation why revenues for this period are not indicative of revenues to be expected from any future period, please read “—Factors to Consider When Evaluating Our Results” above. Please also read “Item 4: Business Overview—Our Fleet” and “—Our Charters” in our Annual Report for information about the charters on these vessels, including daily charter rates.

Voyage Expenses

Voyage expenses amounted to $3.6 million for the year ended December 31, 2007, as compared to $0.4 million for the year ended December 31, 2006 primarily due to the higher number of vessels in our fleet.

Voyage expenses are direct expenses to voyage revenues and primarily consist of commissions, port expenses, canal dues and bunkers. Voyage costs, except for commissions, are paid for by the charterer under time and bareboat charters. In the case of our time charters with Morgan Stanley Capital Group Inc., the charterer is also responsible for commissions.

Vessel Operating Expenses

For the year ended December 31, 2007, our vessel operating expenses amounted to approximately $19.0 million, of which $12.7 million was paid to our manager. For the year ended December 31, 2006, vessel operating expenses amounted to approximately $6.8 million, of which $1.1 million was paid to the manager.

Vessel operating expenses for the years ended December 31, 2007 and December 31, 2006 are not comparable. Vessel operating expenses for the year ended December 31, 2007 represent management fees payable to Capital Ship Management pursuant to our management agreement and actual costs incurred by the vessels which were operated as part of Capital Maritime’s fleet prior to their acquisition by us. For each time chartered vessel in our fleet as of December 31, 2007 we paid Capital Ship Management a fixed daily fee of $5,500 for the provision of commercial and technical services such as crewing, repairs and maintenance, insurance, stores, spares and lubricants. The fee also includes expenses related to the next scheduled special and intermediate survey, and related drydocking for each vessel. For each bareboat chartered vessel we paid a fixed daily fee of $250 to Capital Ship Management mainly for expenses to cover compliance costs, while the bareboat charterer is responsible for all other operating expenses such as crewing, repairs and maintenance, insurance, stores, spares, lubricants and expenses related to the next scheduled surveys and related drydocking of each vessel. The fee is payable for an initial term of approximately five years from when we take delivery of each vessel. Vessel operating expenses for each vessel operated as part of Capital Maritime’s fleet prior to its acquisition by us represent actual costs incurred by the vessel-owning subsidiaries in the operation of such vessels during the relevant time period.

General and Administrative Expenses

General and administrative expenses amounted to $1.5 million for the year ended December 31, 2007. General and administrative expenses include consultancy fees, board of directors’ fees and expenses, audit fees, and other fees related to the expenses of the publicly traded company. For the year ended December 31, 2006, we did not incur any similar general and administrative expenses.

Depreciation and Amortization

Depreciation and amortization of fixed assets amounted to $15.4 million for the year ended December 31, 2007 as compared to $3.8 million for the year ended December 31, 2006.

This amount primarily represents depreciation on seven vessels for the whole year and on eight vessels for a part of the year commencing from their delivery dates in 2007. The amount of depreciation for the year ended December 31, 2006 represents depreciation on two vessels for the whole year and on five vessels for a part of the year commencing from their delivery dates in 2006.

Depreciation is expected to increase as our fleet grows.

Other Income (Expense), Net

Other income (expense), net for the year ended December 31, 2007 was approximately $(16.2) million as compared to $(5.2) million for the year ended December 31, 2006.

The 2007 amount represents interest expense and amortization of financing charges and bank charges of $(16.9) million of which $(3.8) million represent a loss from the transfer of interest rate swap agreements entered into by Capital Maritime prior to April 4, 2007 and acquired by us on that date. Interest income for the period was $0.7 million. The 2006 amount represents interest expense charged to the vessel-owning companies and amortization of financing charges and bank charges of $(5.1) million and $(0.1) million of foreign currency loss. Interest expense for the period ending December 31, 2006 is not indicative of interest expense to be expected for any future period, predominantly because the historical bank debt bore interest at floating rates while we have entered into interest rate swap agreements to fix the LIBOR portion of our interest rate in connection with the debt drawn down under our credit facilities.

Net Income

Net income for the year ended December 31, 2007 amounted to $31.0 million as compared to $8.4 million for the year ended December 31, 2006. For an explanation of why our historical net income is not indicative of net income to be expected in future periods, please refer to the discussion under “— Factors to Consider When Evaluating Our Results,”
“—Time and Bareboat Charter Revenues,” “—Voyage Expenses”, and “—Vessel Operating Expenses” above.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

The results of operations for the years ended December 31, 2006 and December 31, 2005 are not necessarily indicative of the results that may be expected in the future and as such we do not believe that a presentation of the comparison of the results of operations for these years would be useful to our investors or provide meaningful information regarding our current results of operations as the number of vessels, chartering agreements, nature of operating expenses and management and financing arrangements in place during these two years differ significantly from the arrangements in place as of the time of our Offering.

In particular, for the year ended December 31, 2006, only seven of the vessels in our current fleet had been delivered to Capital Maritime. Five of these were delivered between April and November 2006 and were in operation for only a portion of the year. During the year ended December 31, 2005, the M/T Attikos and the M/T Aristofanis were the only two vessels which had been delivered to Capital Maritime and were in operation from January 20, 2005 and June 2, 2005, respectively. In addition, during the years ended December 31, 2006 and 2005 these vessels were managed as part of Capital Maritime’s fleet and operating expenses represented actual costs incurred by the vessel-owning subsidiaries and Capital Ship Management in the operation of the vessels. As of the time of our Offering, however, we entered into a fixed fee agreement with Capital Ship Management for the provision of technical and management services to our vessels for an initial term of approximately five years from the date each vessel was delivered to us. Furthermore, the vessels delivered to Capital Maritime during 2005 and 2006 were purchased under financing arrangements with terms that differ from those of the existing credit facility which we used to finance the acquisition of the vessels. Importantly, under the financing arrangements entered into following our Offering, we are not required to make repayments of principal before June 2012. In addition, the historical bank debt bore interest at floating rates while we have currently entered into interest rate swap agreements to fix the LIBOR portion of our interest rate in connection with the debt drawn down under our existing credit facility. Finally, we do not believe that the presentation of information regarding the charter agreements our vessels operated under in 2005 is useful to our investors as the M/T Attikos traded in the spot market from the date of its delivery to May 2005, at which time it entered into a two year time-charter with Canterbury Tankers Inc. on different terms from the time-charter it is currently under with Trafigura Beheer B.V. The M/T Aristofanis has operated under a time charter with Shell International Trading & Shipping Company Ltd. as of the date of its delivery to Capital Maritime for different time periods than its current time-charter.

B. Liquidity and Capital Resources

As at December 31, 2007, total cash and cash equivalents were $19.9 million and total liquidity including cash and undrawn long-term borrowings was $115.4 million. As at December 31, 2006 total cash and cash equivalents were $1.2 million. This increase is primarily due to the different financing arrangements in place prior to the Offering and the increased number of vessels in our fleet.

We anticipate that our primary sources of funds for our liquidity needs will be cash flows from operations. Generally, our long-term sources of funds will be from cash from operations, long-term bank borrowings and other debt or equity financings. Because we distribute all of our available cash, we expect that we will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion and investment capital expenditures, including opportunities we may pursue under the omnibus agreement with Capital Maritime.

We believe that our working capital will be sufficient to meet our existing liquidity needs for at least the next 12 months.

Cash Flows

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased to $53.0 million for the year ended December 31, 2007 from $10.3 million for the year ended December 31, 2006 primarily due to an increase in net income due to the higher number of vessels in our fleet and an increase in hire received in advance from charterers ($8.6 million in 2007 as compared to $0.5 million in 2006). For an explanation of why our historical net cash provided by operating activities is not indicative of net cash provided by operating activities to be expected in future periods, please read “—Factors to Consider when Evaluating our Results” as well as “—Time and Bareboat Charter Revenues”, “—Voyage Expenses” and “—Vessel Operating Expenses” above.

Net Cash Used in Investing Activities

Net cash used in investing activities amounted to $335.0 million for the year ended December 31, 2007, up from $162.0 million for the year ended December 31, 2006. Cash was used primarily for vessel acquisitions. Specifically, for the year ended December 31, 2007, $331.8 million of the net cash used was comprised of:

$77.6 million, representing advances to the shipyards paid by Capital Maritime between January 1, 2007 and April 3, 2007 with respect to the construction of three of the vessels in our initial fleet: the M/T Aiolos, the M/T Avax and the M/T Axios; and

$166.1 million, representing the net book value at the time of their acquisition by us of the M/T Attikos and of the four vessels we contracted to purchase from Capital Maritime at the time of our Offering delivered between May and September 2007: the M/T Atrotos, the M/T Akeraios, the M/T Anemos I and the M/T Apostolos; and

$88.1 million, representing the purchase price for the M/T Amore Mio II paid by Capital Maritime in July 2007.

The remaining $3.2 million represents restricted cash, which is the minimum amount of free cash we were required to maintain under our credit facilities for the period.

For the year ended December 31, 2006, $142.8 million related to the acquisition of the five newbuildings delivered to Capital Maritime in this period that were then transferred to us at the time of our Offering (the M/T Atlantas, the M/T Aktoras, the M/T Agisilaos, the M/T Assos and the M/T Arionas). The remaining $19.2 million related to advances toward the other three initial vessels: the M/T Aiolos, the M/T Avax and the M/T Axios. For the year ended December 31, 2006, there was no restricted cash.

Net Cash Provided by Financing Activities

Net cash provided by financing activities amounted to $300.7 million for the year ended December 31, 2007, up from $153.0 million for the year ended December 31, 2006.

During the second and the third quarters of 2007 we acquired five additional vessels from Capital Maritime: the M/T Atrotos, the M/T Akeraios, the M/T Apostolos, the M/T Attikos and the M/T Anemos I, for a total purchase price of $247.0 million. The excess of purchase price over book value of the acquired vessels, $80.9 million, is presented in our cash flow statement under net cash provided by financing activities as we recognize transfers of net assets between entities under common control at Capital Maritime’s basis in the net assets contributed.

Proceeds from the issuance of long-term debt amounted to $305.1 million for the year ended December 31, 2007, up from $77.4 million for the year ended December 31, 2006. The proceeds for the year ended December 31, 2007 consisted of $274.5 million from our credit facility entered into on March 22, 2007 and $30.6 million from a credit facility entered into by the vessel-owning company prior to our Offering in order to finance the construction of the M/T Axios.

Proceeds from long-term debt due to related parties for the year ended December 31, 2007 were $109.7 million from credit facilities entered into by Capital Maritime in order to finance the construction of the M/T Aiolos and the M/T Avax and the acquisition of the M/T Amore Mio II in July 2007, as compared to $82.3 million for the year ended December 31, 2006.

Repayment of debt amounted to $16.7 million for the year ended December 31, 2007, down from $22.2 million for the year ended December 31, 2006, and comprised of installment payments made prior to the Offering for vessels in our fleet, including the M/T Aristofanis, and the repayment of M/T Attikos’ loan on September 9, 2007 by Capital Maritime. Repayment of related party debt for the year ended December 31, 2007 amounted to $2.4 million, as compared to the repayment of $2.3 million for the year ended December 31, 2006. Relevant debt and related party debt in the amount of $79.9 and $134.0 million respectively for the year ended December 31, 2007, was repaid by Capital Maritime from the proceeds from our Offering.

Capital contributions by Capital Maritime amounted to $31.3 million for the year ended December 31, 2007 of which $13.7 million relate to contributions made prior to the Offering in connection with the acquisition of three initial vessels (the M/T Aiolos, M/T Avax and M/T Axios) and $17.6 million relate to contribution made by Capital Maritime in connection with its acquisition of the M/T Amore Mio II in July 2007. Capital contributions for the year ended December 31, 2006 were $17.9 million.

Following completion of our Offering on April 4, 2007, we paid a $25.0 million cash dividend to Capital Maritime and also made distributions to unitholders in an aggregate amount of $17.0 million for the second and third quarters of 2007.

Borrowings

Our long-term third party borrowings are reflected in our balance sheet as “Long-term debt” and as current liabilities in “Current portion of long-term debt.” As of December 31, 2007, long-term debt was $281.8 million and the current portion of long-term debt was $0.8 million as compared to $67.3 million and $6.8 million, respectively, for the period ended December 31, 2006. Related party debt is reflected in our combined balance sheet as “Long-term related party debt” and as “Current portion of related party debt.” As of December 31, 2007, long-term related party debt and the current portion of related party debt was $63.0 and $5.9 million, respectively, as compared to $87.5 million and $8.0 million, respectively, for the year ended December 31, 2006.

Revolving Credit Facilities

The financing arrangements in place prior to our Offering are not indicative of our current or future financing arrangements. The financing arrangements in existence at December 31, 2006 represent loans with four separate banks in which Capital Maritime acted as the borrower and the respective vessel-owning companies as the guarantors or, in one instance, the vessel-owning company acted as the borrower and Capital Maritime as the guarantor, for the financing of the construction of the eight vessels which comprised our fleet at the time of our Offering. These loans were repaid in their entirety by Capital Maritime with a portion of the proceeds from our Offering and the vessels were transferred to us debt free.

On March 22, 2007, we entered into a non-amortizing revolving credit facility with a syndicate of financial institutions, including HSH Nordbank AG, Hamburg, for up to $370.0 million for the financing of the acquisition cost, or part thereof, of up to seven medium-range product tankers (the “existing credit facility”). This facility provided us with sufficient funds to purchase the four newbuildings delivered in 2007, the newbuilding delivered in January 2008 and to partly fund the purchase price of the remaining two newbuildings we agreed to purchase from Capital Maritime at the time of our Offering and which were delivered in June and August of 2008. The loan agreement was amended on September 19, 2007 to include the financing of the acquisition cost of the M/T Attikos and was further supplemented on June 11, 2008 to, amongst others, amend the provisions relating to security offered under the facility. As of December 31, 2007, we had drawn down $274.5 under our revolving credit facility. We drew down $48.0 million in connection with the acquisition of the M/T Alexandros II in January 2008 and $44.0 in connection with the deliveries in June and August of 2008 of the M/T Aristotelis II and the M/T Aris II, our final two contracted vessels. Please see Note 5 (Long-Term Debt) to our Supplemental Financial Statements included herein for more information.

On March 19, 2008, we entered into a new 10-year revolving credit facility of up to $350.0 million, which is non-amortizing until March 2013, with HSH Nordbank (the “new credit facility”). We may use this facility to finance a portion of the acquisition price of certain identified vessels currently in Capital Maritime’s fleet, which we may elect to acquire in the future. We may also use this facility to finance up to 50% of the purchase price of any potential future purchases of modern tanker vessels from Capital Maritime or any third parties. To date, we have used $107.5 million of this facility to fund part of the acquisition price of the M/T Amore Mio II, the M/T Aristofanis, the M/T Aristotelis II and the M/T Aris II from Capital Maritime. The new credit facility is subject to similar covenants and restrictions as those in our existing facility described below. Our obligations under both our credit facilities are secured by first-priority mortgages covering each of our financed vessels and are guaranteed by each vessel-owning subsidiary.

Borrowings under our $370.0 million existing credit facility bear interest at a rate of 0.75% over US$ LIBOR. We may continue to draw down amounts under this facility until June 2012, at which date any amounts available for borrowing will automatically terminate and the outstanding amount will automatically convert into a five-year term loan. In addition, we are not required to make any repayments of the principal amounts outstanding under the facility until June 2012 provided that we maintain an aggregate market value of our financed vessels equal to 125% of the aggregate amount outstanding under the facility. The final maturity date of this facility is June 2017.

Borrowings under our $350.0 million new credit facility bear interest at a rate of 1.1% per annum over US$ LIBOR. We may continue to draw amounts under this facility until March 2013, at which date any amounts available for borrowing will automatically terminate and the outstanding amount will automatically convert into a five-year term loan. In addition, we are not required to make any repayments of the principal amounts outstanding under the facility until March 2013, provided that we maintain an aggregate market value of our financed vessels equal to 125% of the aggregate amount outstanding under the facility. The final maturity date of this facility is March 2018.

Our credit facilities contain restrictive covenants that, subject to the approval of our lenders, prohibit us from, among other things: incurring or guaranteeing indebtedness; charging, pledging or encumbering the vessels; changing the flag, class, management or ownership of our vessels; changing the commercial and technical management of our vessels; selling or changing the beneficial ownership or control of our vessels; and subordinating the obligations under our existing credit facility to any general and administrative costs relating to the vessels, including the fixed daily fee payable under the management agreement.

Under the terms of our credit facilities, we may not be able to pay distributions to our unitholders if we are not in compliance with certain financial covenants or upon the occurrence of an event of default or if the fair market value of our financed vessels is less than 125% of the aggregate amount outstanding under each credit facility. As of December 31, 2007 we were in compliance with all debt covenants.

In addition, our credit facilities require us to maintain minimum free consolidated liquidity (50% of which may be in the form of undrawn commitments under the credit facility) of at least $500,000 per financed vessel, maintain a ratio of EBITDA to net interest expense of at least 2.00 to 1.00 on a trailing four-quarter basis and maintain a ratio of total indebtedness to the aggregate market value of our total fleet of no more than 0.725 to 1.00. We are also required to maintain an aggregate market value of our financed vessels equal to 125% of the aggregate amount outstanding under each credit facility.

In connection with our revolving credit facilities and in order to hedge our exposure to interest rate changes, we have entered into the following interest rate swap agreements to fix the LIBOR portion of our interest rate.

	Currency	Notional Amount (millions)	Fixed rate	Trade date	Value date	Maturity date
$370.0 million credit facility	USD	30,000	5.1325%	02.20.2007	04.04.2007	06.29.2012
	USD	56,000	5.1325%	02.20.2007	05.08.2007	06.29.2012
	USD	56,000	5.1325%	02.20.2007	07.13.2007	06.29.2012
	USD	56,000	5.1325%	02.20.2007	09.28.2007	06.29.2012
	USD	56,000	5.1325%	02.20.2007	09.20.2007	06.29.2012
	USD	24,000	5.1325%	02.20.2007	01.15.2008	06.29.2012
	USD	24,000	5.1325%	02.20.2007	01.15.2008	06.29.2012
	USD	24,000	5.1325%	02.20.2007	08.20.2008	06.29.2012
	USD	20,500	4.9250%	09.20.2007	09.24.2007	06.29.2012
	USD	20,000	4.520%	06.13.2008	06.17.2008	06.28.2012

$350.0 million credit facility	USD	46,000	3.525%	03.25.2008	03.27.2008	03.27.2013
	USD	11,500	3.895%	04.24.2008	04.30.2008	03.28.2013
	USD	28,000	4.610%	06.13.2008	06.17.2008	03.28.2013
	USD	22,000	4.099%	08.14.2008	08.20.2008	03.28.2013

Purchase of Vessels Following the Offering

The table below summarizes certain information with respect to the vessels we have purchased from Capital Maritime in 2007 and 2008, including their purchase prices and the date they were delivered to us.

Name of Vessel

Delivery Date/(Expected Delivery Date)

Expiration of Charter

Daily Charter Rate (Net)

OPEX

(per day)

Charterer (1)

Purchase Price

Atrotos

May 2007

April 2010

$20,000(2)

$5,500

$56,000,000

Akeraios

July 2007

June 2010

$20,000(2)

$5,500

$56,000,000

Anemos I

September 2007

August 2010

$20,000(2)

$5,500

$56,000,000

Apostolos

September 2007

August 2010

$20,000(2)

$5,500

$56,000,000

Attikos

September 2007

September 2009

$13,504(3)

$5,500

Trafigura

$23,000,000

Alexandros II

January 2008

December 2017

$13,000(4)

$250

OSG

$48,000,000

Amore Mio II

March 2008

January 2011

$36,000(2)(3)

$8,500

$85,739,320 (5)

Aristofanis

April2008

March 2010

$12,952(3)

$5,500

Shell

$21,566,265 (5)

Aristotelis II

June 2008

May 2018

$13,000(4)

$250

OSG

$48,000,000

Aris II

August 2008

July 2018

$13,000(4)

$250

OSG

$48,000,000

___________

(1)	BP: BP Shipping Limited. Morgan Stanley: Morgan Stanley Capital Group Inc., OSG: certain subsidiaries of Overseas Shipholding Group Inc. Trafigura: Trafigura Beheer B.V. Shell: Shell International Trading & Shipping Company Ltd.

(2)	Subject to 50/50 profit sharing arrangement. Please read “Item 4: Business —Time Charters—Profit Sharing” and “Item 4: Business —Our Fleet” in our Annual Report for more information on our profit sharing arrangements and relevant commissions.

(3)	The rates quoted above are the net rates after we have paid commissions on the base rates. The rates for the M/T Attikos, the M/T Amore Mio II and the M/T Aristofanis are subject to 2.5%, 1.25% and 2.25% commissions, respectively.

(4)

Under the charters with Overseas Shipholding Group Inc. for the three STX vessels delivered in 2008, Overseas Shipholding Group Inc. has an option to purchase each vessel at the end of the eighth, ninth or tenth year of the charter, for $38.0 million, $35.5 million and $33.0 million respectively, which option is exercisable six months before the date of completion of the eighth, ninth or tenth year of the respective charter. The expiration date above may therefore change depending on whether the charterer exercises its purchase option.

(5)

The M/T Amore Mio II was acquired on March 27, 2008 and the M/T Aristofanis was acquired on April 30, 2008. Please see Note 14 (Subsequent Events) to our Supplemental Financial Statements included herein for more information regarding these acquisitions, including a breakdown of the way such acquisitions were funded.

C. Off-Balance Sheet Arrangements

As of the date of this Current Report on Form 6-K, we have not entered into any off-balance sheet arrangements.

D. Contractual Obligations and Contingencies

The following table summarizes our long-term contractual obligations as of December 31, 2007 (thousands of U.S. Dollars).

	December 31,
	2008		2009		2010		2011		2012		Thereafter		Total

Long-term Debt Obligations	$	6,701	$	6,701	$	6,701	$	6,453	$	19,436	$	305,505	$	351,497
Interest Obligations (1)	$	20,670	$	20,228	$	19,843	$	19,457	$	19,014	$	62,686	$	161,898
Vessel Purchase Commitments (2)(3)	$	144,000		–		–		–		–		–	$	144,000

Total	$	171,371	$	26,929	$	26,544	$	25,910	$	38,450	$	368,191	$	657,395

___________

(1)

Interest expense has been calculated based on the fixed interest rate of 5.1325% plus a margin of 0.75% for the amount of $254.0 million and 4.925% plus a margin of 0.75% for the amount of $20.5 million. For M/T Amore Mio II and M/T Aristofanis, interest expense calculations have been based on December 2007 LIBOR fixations. The interest rate fixation resulted from the nine interest rate swap agreements that we entered into in order to reduce our exposure to cash flow risks from fluctuating interest rates and fully cover our debt.

(2)

Purchase commitments represent outstanding purchase commitments relating to the acquisition of the final three MR product tankers (M/T Alexandros II, M/T Aristotelis II and M/T Aris II) to be delivered to us pursuant to the share purchase agreement we entered into with Capital Maritime. The vessels were delivered to us in January, June and August 2008, respectively.

(3)

On March 27, 2008, we acquired the M/T Amore Mio II from Capital Maritime, pursuant to a share purchase agreement of the same date, for an aggregate purchase price of $85.7 million and on April 30, 2008 we acquired the M/T Aristofanis from Capital Maritime, pursuant to a share purchase agreement entered into on the same date, for an aggregate purchase price of $21.6 million. Please see Note 14 (Subsequent Events) to our Supplemental Financial Statements included herein for more information regarding these acquisitions.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies that involve a higher degree of judgment and the methods of their application. For a description of all of our significant accounting policies, see Note 2 (Significant Accounting Policies) to our Supplemental Financial Statements included herein for more information. Please also refer to Note 2 (Significant Accounting Policies – Recent Accounting Pronouncements) for a description of the most recent pronouncements issued by the Financial Accounting Standards Board which apply to us.

Vessel Lives and Impairment

The carrying value of each of our vessels represents its original cost (contract price plus initial expenditures) at the time of delivery or purchase less accumulated depreciation or impairment charges. Depreciation is calculated based on the vessel’s capitalized costs using the straight line method over an estimated useful life of 25 years from the date the vessel was originally delivered from the shipyard, after considering the estimated residual value. However, the actual life of a vessel may be different, with a shorter life potentially resulting in an impairment loss. Vessels transferred from Capital Maritime to us are transferred at their net book values because such transfers are accounted for as transfers of assets between entities under common control. We are not aware of any regulatory changes or environmental liabilities that we anticipate will have a material impact on the vessel lives of our current fleet. The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Both charter rates and newbuilding costs tend to be cyclical in nature. We review vessels and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If impairment indicators are present, we measure the recoverability of an asset by comparing its carrying amount to future undiscounted cash flows that the asset is expected to generate over its remaining useful life. If we consider a vessel or equipment to be impaired, we recognize impairment in an amount equal to the excess of the carrying value of the asset over its fair market value. No impairment loss was recorded for any of the periods presented in our Supplemental Financial Statements.

Revenue Recognition

We generate revenues from charterers for the charterhire of our vessels which are chartered either under time or bareboat charters. All of our time charters and bareboat charters are classified as operating leases. Revenues under operating lease arrangements are recognized when a charter agreement exists, the charter rate is fixed and determinable, the vessel is made available to the lessee, and collection of the related revenue is reasonably assured. Revenues are recognized ratably on a straight line basis as the average revenue over the period of the respective time or bareboat charter agreement in accordance with FASB 13 “Accounting for Leases”, paragraph 19b. We currently do not enter into spot voyage arrangements with respect to any of our vessels but may do so in the future. Although our charter revenues are fixed, and, accordingly, little judgment is required to be applied to the amount of revenue recognition, there is no certainty as to the daily charter rates or other terms that will be available upon the expiration of our existing charters.

Revenues from profit sharing arrangements in time charters represent the portion of time charter equivalent (voyage income less direct expenses divided by operating days), that exceeds the agreed base rate and are recognized in the period earned.

Interest Rate Swap Agreements

We designate our derivatives based upon the criteria established by SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities—An amendment of SFAS 133 (“SFAS 138”) and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS 149”), requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for the changes in the fair value of the derivative depends on the intended use of the derivative and the resulting designation. For a derivative that does not qualify as a cash flow hedge, the change in fair value is recognized at the end of each accounting period on the income statement. For a derivative that qualifies as a cash flow hedge, the change in fair value is recognized at the end of each reporting period in accumulated other comprehensive income/ (loss) (effective portion) until the hedged item is recognized in income. The ineffective portion of a derivative’s change in fair value is immediately recognized in the income statement.

As of December 31, 2007 all our interest rate swaps qualified as a cash flow hedge and the changes in their fair value were recognized in accumulated other comprehensive income/(loss). Please see Note 2 (Significant Accounting Policies – Interest Rate Swap Agreements) to our Supplemental Financial Statements included in this Current Report on Form 6-K for more detailed information.

(i)	Exhibit I is Capital Product Partners L.P.’s operating and financial review and prospects for the period ending December 31, 2007;

(ii)	Exhibit II are Capital Product Partners L.P.’s supplemental consolidated and predecessor combined financial statements for the periods ending December 31, 2007, 2006 and 2005; and

(iii)	Exhibit III are Capital Product Partners L.P.’s selected financial data for the periods ending December 31, 2007, 2006 and 2005.

CAPITAL PRODUCT PARTNERS L.P.,

By:	Capital GP L.L.C., its general partner

	/s/ Ioannis E. Lazaridis
	Name:	Ioannis E. Lazaridis
	Title:	Chief Executive Officer and Chief Financial Officer of Capital GP L.L.C.

	Page

Report of Independent Registered Public Accounting Firm	F-2

Supplemental Consolidated and Predecessor Combined Balance Sheets as of December 31, 2007 and 2006.	F-3

Supplemental Consolidated and Predecessor Combined Statements of Income for the years ended December 31, 2007, 2006 and 2005.	F-4

Supplemental Consolidated and Predecessor Combined Statements of Changes in Partners’ Capital / Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005.	F-5

Supplemental Consolidated and Predecessor Combined Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005.	F-7

Notes to the Supplemental Consolidated and Predecessor Combined Financial Statements.	F-8

	December 31, 2007			December 31, 2006
Assets
Current assets
Cash and cash equivalents	$	19,919		$	1,239
Trade accounts receivable		2,600			799
Insurance claims		–			76
Due from related parties (Note 3)		4,262			7,018
Prepayments and other assets		410			220
Inventories		320			304
Total current assets		27,511			9,656
Fixed assets
Vessels under construction (Note 4)		–			29,225
Vessels, net (Note 4)		525,199			188,975
Total fixed assets		525,199			218,200
Other non-current assets
Deferred finance charges, net (Note 7)		1,031			655
Restricted cash (Note 2, 5)		3,250			–
Total non-current assets		529,480			218,855
Total assets	$	556,991		$	228,511

Liabilities and Partners’ Capital / Stockholders’ Equity
Current liabilities
Current portion of long-term debt (Note 5)	$	768		$	6,797
Current portion of related party debt (Note 3)		5,933			8,042
Trade accounts payable		1,271			1,879
Due to related parties (Note 3)		65			1,929
Accrued loan interest		70			1,674
Accrued other liabilities (Note 6)		693			627
Deferred revenue		3,473			824
Total current liabilities		12,273			21,772
Long-term liabilities
Long-term debt (Note 5)		281,812			67,334
Long-term related party debt (Note 3)		62,984			87,498
Deferred revenue		690			–
Derivative instruments (Note 2)		14,051			–
Total long-term liabilities		359,537			154,832
Total liabilities		371,810			176,604
Commitments and contingencies (Note 13)		–			–
Stockholders’ Equity
Common stock (par value $0; 4,200 shares issued and outstanding at December 31, 2006)		–			–
Additional paid in capital - Predecessor		18,060			42,317
Retained earnings - Predecessor		5,182			9,590
Partners’ Capital
General Partner interest		3,444			–
Limited Partners
- Common (13,512,500 units issued and outstanding at December 31, 2007)		102,130			–
- Subordinated (8,805,522 units issued and outstanding at December 31, 2007)		66,653			–
Accumulated other comprehensive loss (Note 2)		(10,288	)		–
Total partners’ capital / stockholders’ equity		185,181			51,907
Total liabilities and partners’ capital / stockholders’ equity	$	556,991		$	228,511

			For the year ended December 31,
			2007			2006			2005


Revenues				86,545			24,605			6,671

Expenses:
Voyage expenses (Note 8)				3,553			427			555
Vessel operating expenses - related party (Note 3, 8)				12,688			1,124			360
Vessel operating expenses (Note 8)				6,287			5,721			3,285
General and administrative expenses				1,477			–			–
Depreciation and amortization (Note 4, 7)				15,363			3,772			595
Operating income				47,177			13,561			1,876
Other income (expense), net:
Interest expense and finance cost				(13,121	)		(5,117	)		(653	)
Loss on interest rate agreements				(3,763	)		–			–
Interest income				711			13			6
Foreign currency gain/(loss), net				(45	)		(63	)		18
Total other expense, net				(16,218	)		(5,167	)		(629	)
Net income			$	30,959		$	8,394		$	1,247
Less:
Net income attributable to predecessor operations				(9,388	)
Partnership’s net income				21,571
General Partner’s interest in Partnership’s net income			$	431
Limited Partners’ interest in Partnership’s net income				21,140
Net income allocable to limited partner per:
	–	Common unit (basic and diluted)		1.11
	–	Subordinated unit (basic and diluted)		0.70
	–	Total unit (basic and diluted)		0.95
Weighted-average units outstanding:
	–	Common units (basic and diluted)		13,512,500
	–	Subordinated units (basic and diluted)		8,805,522
	–	Total units (basic and diluted)		22,318,022

						Partners’ Capital
	Comprehensive Income		Common Stockholders’ Equity			Common			Subordinated			General Partner			Total			Accumulated Other Comprehensive Loss		Total

Balance at December 31, 2004	$	–	$	20,107		$	–		$	–		$	–		$	–		$	–	$	20,107
Additional paid in capital		–		4,212			–			–			–			–			–		4,212
Net Income		1,247		1,247			–			–			–			–			–		1,247
Comprehensive income		1,247
Balance at December 31, 2005				25,566			–			–			–			–			–		25,566
Additional paid in capital		–		17,947			–			–			–			–			–		17,947
Net Income		8,394		8,394			–			–			–			–			–		8,394
Comprehensive income		8,394
Balance at December 31, 2006				51,907			–			–			–			–			–		51,907
Additional paid in capital “Initial Vessels” up to April 3, 2007		–		13,679			–			–			–			–			–		13,679
Net income “Initial Vessels” predecessor operations		5,328		5,328			–			–			–			–			–		5,328
Comprehensive income		5,328
Balance at April 3, 2007				70,914																	70,914
Distribution of “Initial Vessels” retained earnings as of April 3, 2007, to previous owners				(9,919	)																(9,919	)
Allocation of predecessor’s “Initial Vessels” equity to unit holders		–		(55,073	)		32,658			21,313			1,102			55,073			–		–
Contributions to the Partnership		–		–			129,556			84,550			4,369			218,475			–		218,475
Excess of purchase price over book value of vessels acquired from entity under common control (Note 4)		–		–			(47,954	)		(31,295	)		(1,617	)		(80,866	)		–		(80,866	)

Subsidiary	Date of Incorporation	Name of Vessel Owned by Subsidiary	DWT	Date acquired by the Partnership	Date acquired by CMTC
Capital Product Operating GP LLC	01/16/2007	–	–		–
Shipping Rider Co.	09/16/2003	M/T Atlantas	36,760	04/04/2007	04/26/2006
Canvey Shipmanagement Co.	03/18/2004	M/T Assos	47,872	04/04/2007	05/17/2006
Centurion Navigation Limited	08/27/2003	M/T Aktoras	36,759	04/04/2007	07/12/2006
Polarwind Maritime S.A.	10/10/2003	M/T Agisilaos	36,760	04/04/2007	08/16/2006
Carnation Shipping Company	11/10/2003	M/T Arionas	36,725	04/04/2007	11/02/2006
Apollonas Shipping Company	02/10/2004	M/T Avax	47,834	04/04/2007	01/12/2007
Tempest Maritime Inc.	09/12/2003	M/T Aiolos	36,725	04/04/2007	03/02/2007
Iraklitos Shipping Company	02/10/2004	M/T Axios	47,872	04/04/2007	02/28/2007
Epicurus Shipping Company	02/11/2004	M/T Atrotos	47,786	05/08/2007	05/08/2007
Laredo Maritime Inc.	02/03/2004	M/T Akeraios	47,781	07/13/2007	07/13/2007
Lorenzo Shipmanagement Inc.	05/26/2004	M/T Apostolos	47,782	09/20/2007	09/20/2007
Splendor Shipholding S.A.	07/08/2004	M/T Anemos I	47,782	09/28/2007	09/28/2007
Ross Shipmanagement Co.	12/29/2003	M/T Attikos	12,000	09/24/2007	01/20/2005
Baymont Enterprises Incorporated	05/29/2007	M/T Amore Mio II	159,982	03/27/2008	07/31/2007
Forbes Maritime Co.	02/03/2004	M/T Aristofanis	12,000	04/30/2008	06/02/2005

Bank	Currency	Notional Amount	Fixed rate	Trade date	Value date	Maturity date	Fair market value as of December 31, 2007
HSH Nordbank AG	USD	30,000	5.1325%	02.20.2007	04.04.2007	06.29.2012	$(1,246)
HSH Nordbank AG	USD	56,000	5.1325%	02.20.2007	05.08.2007	06.29.2012	(2,326)
HSH Nordbank AG	USD	56.000	5.1325%	02.20.2007	07.13.2007	06.29.2012	(2,326)
HSH Nordbank AG	USD	56,000	5.1325%	02.20.2007	09.28.2007	06.29.2012	(2,326)
HSH Nordbank AG	USD	56,000	5.1325%	02.20.2007	09.20.2007	06.29.2012	(2,266)
HSH Nordbank AG	USD	24,000	5.1325%	02.20.2007	01.15.2008	06.29.2012	(1,004)
HSH Nordbank AG	USD	24,000	5.1325%	02.20.2007	01.15.2008	06.29.2012	(1,004)
HSH Nordbank AG	USD	24,000	5.1325%	02.20.2007	08.15.2008	06.29.2012	(891)
HSH Nordbank AG	USD	20,500	4.9250%	09.20.2007	09.24.2007	06.29.2012	(662)

Total derivative instruments fair value							$(14,051)

	●	Loan agreements that CMTC entered into, acting as the borrower, for the financing of the construction of five of the Initial Vessels,
	●	Manager payments on behalf of the vessel owning companies and hire receipts from charterers,
	●	Manager fixed monthly fees, (which were based on agreements with different terms and conditions than those in the Partnership’s administrative and management agreements) for providing services such as chartering, technical support and maintenance, insurance, consulting, financial and accounting services, (Note 8),
	●	Funds advanced/received to/from entities with common ownership, and
	●	Loan draw downs in excess of the advances made to the shipyard by the Manager for the funding of vessels’ extra costs.

	As of December 31, 2007		Predecessor Combined Balances as of December 31, 2006

I. Due From:
Vessels’ operation (a)	$	4,262	$	6,493
Manager - loan surplus (b)		–		500
Other affiliated companies (c)		–		25
Total due from	$	4,262	$	7,018

II. Due To:
CMTC - loans current portion (d)	$	5,933	$	8,042
CMTC - loans long-term portion (d)		62,984		87,498
Manager - payments on behalf of vessel-owning companies (e)		–		1,867
Manager – payments on behalf of Capital Product Partners L.P. (f)		28		–
Other affiliated companies (c)		37		62
Total due to	$	68,982	$	97,469

		Vessel	As of December 31, 2007		Predecessor Combined Balances as of December 31, 2006

(i)	Issued on November 25, 2005, maturing in April, 2017	M/T Atlantas		–	$	25,190
(ii)	Issued on December 23, 2005, maturing in July, 2016	M/T Aktoras		–		25,283
(iii)	Issued on October 18, 2005, maturing in February, 2017	M/T Aiolos		–		6,920
(iv)	Issued on December 23, 2005, maturing in May, 2016	M/T Assos		–		30,477
(v)	Issued on October 18, 2005, maturing in January, 2017	M/T Avax		–		7,670
(vi)	Issued on July 31, 2007, maturing on September, 2017	M/T Amore Mio II		68,917		–
	Total			68,917	$	95,540
	Less: Current portion			5,933		8,042
	Long-term portion			62,984	$	87,498

Year ending December 31	Bank Loan Repayment Schedule
2008	$	5,933
2009		5,933
2010		5,932
2011		5,685
2012		4,944
Thereafter		40,490
Total	$	68,917

	As of December 31, 2007			Predecessor Combined Balances as of December 31, 2006

Cost:
Vessels	$	544,836		$	193,342
Advances for vessels under construction					29,225
Total cost		544,836			222,567
Accumulated depreciation		(19,637	)		(4,367	)
Vessels, net		525,199		$	188,975
Vessels under construction	$	–		$	29,225

	Bank Loans	Vessel/Entity	As of December 31, 2007		Predecessor Combined Balances as of December 31, 2006

(i)	Issued on October 31, 2006 maturing in October 2016	M/T Arionas	$	–	$	26,180
(ii)	Issued on August 14, 2006 maturing in August 2016	M/T Agisilaos		–		25,740
(iii)	Pre-delivery facility issued on July 18, 2006 and refinanced on February 28, 2007 (Vessel’s delivery date)	M/T Axios		–		5,613
(iv)	Issued on March 4, 2005 maturing March 4, 2015	M/T Attikos		–		7,750
(v)	Issued on April 4, 2007 maturing on June 30, 2017	Capital Product Partners L.P.		274,500		–
(vi)	Issued on June 21, 2005 maturing on June 21, 2015.	M/T Aristofanis		8,080		8,848
	Total		$	282,580	$	74,131
	Less: Current portion			768		6,797
	Long-term portion		$	281,812	$	67,334

	As of December 31, 2007		Predecessor Combined Balances as of December 31, 2006
Accrued wages and crew expenses		96		296
Accrued other operating expenses		39		220
Accrued voyage expenses and commission		471		81
Accrued insurance		24		30
Accrued general and administrative		63		–
Total	$	693	$	627

	Deferred Finance Charges

Predecessor Combined Balance as of January 1, 2005		–
Additions		425
Amortization		(9	)
Predecessor Combined Balance as of December 31, 2005	$	416
Additions		285
Amortization		(46	)
Predecessor Combined Balance as of December 31, 2006		655
Amortization for the period from January 1, 2007 to April 3, 2007 for Initial Vessels		(20	)
Amortization for the period from January 1, 2007 to September 23, 2007 for M/T Attikos		(18	)
Deferred loan fees assumed by CMTC on April 03, 2007		(594	)
Additions M/T Amore Mio II loan fees		70
Amortization M/T Amore Mio II and M/T Aristofanis loan fees		(10	)
Additions (new credit facility of up to $370 million)		1,022
Amortization of new credit facility loan fees		(74	)
Supplemental Consolidated Balance as of December 31, 2007	$	1,031

	Deferred Dry Docking
Predecessor Combined Balance as of December 31, 2006		–
Addition Dry Docking of M/T Attikos		921
Amortization for the period from July to September 23, 2007		(92	)
Deferred Dry Docking assumed by CMTC on September 23, 2007		(829	)
Balance as of December 31, 2007	$	–

	For the year ended December 31,
	2007 (Note 1)		2006 (Note 1)		2005 (Note 1)
Voyage expenses	$	3,553	$	427	$	555

Voyage expenses consist of:
Commissions		1,010		392		140
Port expenses		1,192		–		218
Bunkers		1,276		–		191
Other		75		35		6
Total		3,553		427		555

Vessel operating expenses		6,287		5,721		3,285
Vessel operating expenses – related parties (Note 3)		12,688		1,124		360
Total		18,975		6,845		3,645

Vessel operating expenses consist of:
Crew costs and related costs		3,408		2,962		1,191
Insurance		423		510		162
Spares, repairs, maintenance and other		1,305		988		1,239
Stores and lubricants		883		1,009		578
Management fees (Note 3)		12,688		1,124		360
Other operating expenses		268		252		115
Total	$	18,975	$	6,845	$	3,645

	Balances assumed by CMTC on September 23, 2007			Balances assumed by CMTC on April 03, 2007

Cash and cash equivalents				$	2,251
Trade receivables	$	118			1,922
Insurance claims		1			70
Due from related parties		-			7,598
Prepayments and other		116			241
Inventories		54			274
Deferred charges		829			594
Total assets		1,118			12,950

Trade accounts payable		651			1,744
Accrued interest and other liabilities		273			570
Due to related parties		5,153			364
Deferred revenue		228			4,985
Long term debt		-			213,843
Total liabilities		6,305			221,506
Net liabilities assumed by CMTC		5,187			208,556

Contribution to the Partnership		(9,064	)		(218,475	)
Retained earnings assumed by CMTC		3,877			9,919
Net Partners’ Capital / Stockholders’ Equity contributed by CMTC	$	(5,187	)	$	(208,556	)

●	less the amount of cash reserves established by our board of directors to:

	●	provide for the proper conduct of Partnership’ s business (including reserves for future capital expenditures and for our anticipated credit needs);
	●	comply with applicable law, any of Partnership’s debt instruments, or other agreements; or
	●	provide funds for distributions to Partnership’s unitholders and to general partner for any one or more of the next four quarters;
●	plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. Working capital borrowings are generally borrowings that are made under our credit agreement and in all cases are used solely for working capital purposes or to pay distributions to partners.

			Marginal Percentage Interest in Distributions
	Total Quarterly Distribution Target Amount		Unitholders	General Partner
Minimum Quarterly Distribution		$0.3750	98%	2%
First Target Distribution	up to	$0.4313	98%	2%
Second Target Distribution	above	$0.4313 up to $0.4688	85%	15%
Third Target Distribution	above	$0.4688 up to $0.5625	75%	25%
Thereafter	above	$0.5625	50%	50%

	●	first, 98% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;
	●	second, 98% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;
	●	third, 98% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and

	As of December 31, 2007
Common units		13,512,500
Subordinated units		8,805,522

Number of limited partners’ units outstanding		22,318,022

General Partners units		455,470

Total partnership’s units		22,773,492

Shipowning Company	Date of Incorp.	DWT	Expected Delivery Date	Name of Vessel Owned by Subsidiary	Vessel Purchase Price

Sorrel Shipmanagement Inc.	02/07/2006	51,000	01/2008	M/T Alexandros II	$48,000
Wind Dancer Shipping Inc.	02/07/2006	51,000	06/2008	M/T Aristotelis II	$48,000
Belerion Maritime Co.	01/24/2006	51,000	08/2008	M/T Aris II	$48,000

Vessel Name	Time Charter (T.C.)/ Bare Boat Charter (B.C.) (Years)	Commencement of Charter	Charterer	Profit Sharing(1)	Gross Daily Hire Rate (Without Profit Sharing)

M/T Atlantas (British Ensign)	5+3 B.C.	04/2006	B.P. Shipping Ltd	–	$15.2 (5y) & $13.5 (3y)
M/T Aktoras (British Envoy)	5+3 B.C.	07/2006	B.P. Shipping Ltd	–	$15.2 (5y) & $13.5 (3y)
M/T Agisilaos	2.5 T.C.	08/2006	B.P. Shipping Ltd	50/50	$17.7
M/T Arionas	2+0.5 T.C.	11/2006	B.P. Shipping Ltd	50/50	$21.3 (2y) & $19.2 (0.5y)
M/T Aiolos (British Emissary)	5+3 B.C.	03/2007	B.P. Shipping Ltd	–	$15.2 (5y) & $13.5 (3y)
M/T Avax	3 T.C.	06/2007	B.P. Shipping Ltd	50/50	$20.8
M/T Axios	3 T.C.	03/2007	B.P. Shipping Ltd	50/50	$20.8
M/T Assos	3 T.C.	11/2006	Morgan Stanley	50/50	$20.0
M/T Atrotos	3 T.C.	05/2007	Morgan Stanley	50/50	$20.0
M/T Akeraios	3 T.C.	07/2007	Morgan Stanley	50/50	$20.0
M/T Anemos I	3 T.C.	09/2007	Morgan Stanley	50/50	$20.0
M/T Apostolos	3 T.C.	09/2007	Morgan Stanley	50/50	$20.0
M/T Alexandros II	10 B.C.	01/2008	O.S.G.(2)	–	$13.0
M/T Aristotelis II	10 B.C.	06/2008	O.S.G.(2)	–	$13.0
M/T Aris II	10 B.C.	08/2008	O.S.G.(2)	–	$13.0
M/T Attikos	2.2 to 2.3 T.C.	07/2007	Trafigura Beheer B.V.	–	$13.9
M/T Amore Mio II	3 T.C.	10/2007	B.P. Shipping Ltd	50/50	$36.5
M/T Aristofanis	4.8 T.C.	06/2005	Shell International	–	$13.5

Year ending December 31	Amount
2008	$	113,453
2009		105,152
2010		63,583
2011		30,813
2012		29,202
Thereafter		71,842

Total	$	414,044

	●	Partial acquisition cost of up to $57,500 for Amore Mio II, and Aristofanis (Tranche A)
	●	50% of the acquisition cost of up to $52,500 for M/T Alkiviadis and M/T Aristidis (Tranche B)
	●	50% of the acquisition cost of up to $240,000 for any further modern tanker (Tranche C)

	●	The ratio of EBITDA to Net Interest Expenses shall be no less than 2:1,
	●	Minimum cash requirements of $500 per vessel,
	●	The total indebtedness shall not be greater than 0.725 to 1 of the aggregate fair market value of the vessels.

	Period from Aug. 27, 2003 (inception) to Dec. 31, 2004(3)			Year Ended Dec. 31, 2005(3)			Year Ended Dec. 31, 2006(3)			Year Ended Dec. 31, 2007(3)
Income Statement Data:
Revenues	$	–		$	6,671		$	24,605		$	86,545
Expenses:
Voyage expenses(1)		–			555			427			3,553
Vessel operating expenses—related party (2)		–			360			1,124			12,688
Vessel operating expenses (2)		51			3,285			5,721			6,287
General and administrative expenses		–			–			–			1,477
Depreciation and amortization		–			595			3,772			15,363

Total operating expenses		51			4,795			11,044			39,368

Operating income (expense)		(51	)		1,876			13,561			47,177
Interest expense and finance costs		–			(653	)		(5,117	)		(13,121	)
Loss on interest rate swap agreement		–			–			–			(3,763	)
Interest income		–			6			13			711
Foreign currency gain/(loss), net		–			18			(63	)		(45	)

Net income (loss)		(51	)	$	1,247		$	8,394		$	30,959

Less:
Net income attributable to predecessor operations:											(9,388	)
Partnership’s net income											21,571
General partner’s interest in our net income		–			–			–			431
Limited partners’ interest in our net income		–			–			–			21,140
Net income allocable to limited partner per:
Common unit (basic and diluted)		–			–			–			1.11
Subordinated unit (basic and diluted)		–			–			–			0.70
Total unit (basic and diluted)		–			–			–			0.95
Weighted-average units outstanding (basic and diluted):
Common units		–			–			–			13,512,500
Subordinated units		–			–			–			8,805,522
Total units		–			–			–			22,318,022

Balance Sheet Data (at end of period):
Vessels, net and under construction	$	26,199		$	59,926		$	218,200		$	525,199
Total assets		26,217			61,692			228,511			556,991
Total partners’ capital / stockholders’ equity		20,107			25,566			51,907			185,181
Number of shares/units		4,200			4,200			4,200			22,773,492
Common units		–			–			–			13,512,500
Subordinated units		–			–			–			8,805,522
General Partner units		–			–			–			455,470
Dividends declared per unit		–			–			–		$	0.75

Cash Flow Data:
Net cash provided by operating activities		45			2,219			10,265			53,014
Net cash used in investing activities		(26,199	)		(34,322	)		(162,047	)		(335,047	)
Net cash provided by financing activities		26,169			32,095			153,014			300,713