PBF Logistics LP
Q3 2016 Earnings Call Transcript

Published: 30 Oct 2016

[Operator:]

Welcome to the PBF Logistics Third Quarter 2016 Earnings Conference Call and Webcast. At this time all participants have been placed in a listen-only mode, unless floor will be open for your questions following the managements prepared remarks. Please note, today's call may be recorded. [Operator Instructions] It's now my pleasure to turn the floor over to Colin Murray, Investor Relations. Sir, you may begin.

[Colin Murray:]

Thank you, Erica. Good morning; welcome to today's call. With me today are Matt Lucey, Executive Vice President; Erik Young, our CFO; and several other members of the Partnership's senior management team. If you'd like a copy of our earnings release, it is available on our website. Before we begin I would like to direct your attention to the forward-looking statement disclaimer contained in today's press release. In summary it outlines that statements in the press release and on this conference call that state the Partnership's or Management's expectations or predictions of the future are forward-looking statements intended to be covered in the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we've described in our filings with the SEC. Now, I'll turn the call over to Matt Lucey.

[Matt Lucey:]

Thanks, Colin. Good morning. Our assets operated well during the quarter and throughput rates can be found on our earnings release. We are pleased to announce an increase in the Partnership's quarterly distribution to $0.44 per unit per quarter. This represents our eighth consecutive distribution increase since our IPO and equates to a compound annual growth rate of approximately 18% and a 46% increase to our minimum quarterly distribution. The successful execution of our disciplined growth strategy is a building block for PBF Logistics' continued expansion and drives support for increased distributions. Earlier this year we completed our first third-party acquisition of the East Coast Terminals from Plains and in the third quarter we continued our growth through the successful drop-down of a 50% interest in the Torrance Valley pipeline company. We remain focused on the continued growth of the Partnership through both third-party transactions and drop-down acquisitions. We have developed a robust acquisition pipeline and are actively pursuing multiple third-party M&A opportunities. In conjunction with the West Coast pipeline acquisition, we successfully raised approximately $87 million through an underwritten offering. We demonstrated again that PBF Logistics can access the capital markets and organically fund its strategic growth. With that, Erik will go through the financials.

[Erik Young:]

Thank you, Matt. This morning we reported third-quarter net income to the partnership of 20.9 million or $0.50 per common limited partner unit, and EBITDA of approximately 31.5 million. We generated 25.1 million of cash available for distribution, which represents a quarterly coverage ratio of approximately 1.27 times. Revenue for the quarter was 48.4 million, which includes 4.6 million of third-party revenue from our East Coast Terminals. Total costs were 22.4 million including operating and maintenance expenses, G&A, and depreciation and amortization. Included in this figure is approximately 1.3 million of transaction expenses associated with the third quarter acquisition. Interest expense and financing costs for the quarter were approximately 7.7 million. We are pleased to report that we ended the quarter with approximately $231 million in liquidity, including 44 million of cash and access to approximately 187 million under our revolving credit facility. As a result our net debt to EBITDA ratio was approximately 3.7 times on an annualized basis. I'd like to follow-up briefly on Matt's commentary regarding our recent acquisition. We financed the Torrance pipeline transaction through our second successful equity offering this year, plus borrowings under our revolving credit facility. We view access to the public markets as a key and necessary component to finance the growth of PBF Logistics. We've been successful in accessing the markets to date and we will continue to be opportunistic when it comes to funding with continued growth of our Company. Operator, we've concluded our opening remarks and now we'll open the call for questions.

[Operator:]

Certainly. [Operator Instructions] And we will go first to the line of Justin Jenkins with Raymond James. Please go ahead.

[Justin Jenkins:]

I will start with one on growth plans. You guys have been very prudent thus far it seems with dropdowns. I'm just curious how you frame the balance of the desire to do dropdowns to help delever the parent company versus how you see the third-party M&A environment? And how you would try to improve the overall cost of capital in either situation?

[Erik Young:]

I think overall we are really planning on staying the course. We have grown the parent company which has allowed us to do dropdowns like the Torrance Valley pipeline acquisition. At the same time run a parallel path and we have done our first third-party acquisition and plan on doing more third-party acquisitions as we go. We have been very prudent on the dropdown pace and we've laid that out for people and I think it's probably going to be more of the path as we go forward. But ultimately, it does provide a deleveraging opportunity at the parent company to do these drops so it is attractive. I think it's probably similar to what we did with the 50% dropdown interest in Torrance Valley pipeline.

[Justin Jenkins:]

That's helpful. And maybe any worries on changes from the IRS or treasury on regulations for dropdowns?

[Erik Young:]

We have seen the pronouncement and we're in the process of continuing dialogue with our external advisors on this. It really is something that ultimately we have used the structure in the past and will not be able to do as we go forward past January 3rd. But ultimately we think there's still plenty of opportunity to grow the business through other avenues. That doesn't necessarily kind of stop our appetite to do any types of transactions as we go. And I said before one of the ways that we think PBF Logistics has an advantage is we do have assets like the Torrance Valley pipeline that ultimately were acquired within the past year. Ultimately doing those transactions you don't need to do any tax deferral strategies.

[Justin Jenkins:]

Okay that is great. And then just last one for me if I could. Could you mention any thoughts on how the integration of the East Coast Terminals is going and thoughts on the EBITDA uplift you might expect from some of the CapEx you're spending there to grow the business?

[Matt Lucey:]

This is Matt Lucey. I would say the Plains transaction is ahead of schedule. We are breaking ground as we speak in connecting the terminal in Paulsboro to our refinery in Paulsboro which will step up our run rate EBITDA. But all I can tell you at this point is we are as enthusiastic about the transaction as we were when we announced it and we think the prospects are better today than when we brought it to market.

[Justin Jenkins:]

Great I appreciate it guys.

[Operator:]

[Operator Instructions] We will go next to the line of Ryan Levine with Citi.

[Ryan Levine:]

Just a follow-up on the IRS question. Is there any granularity you could provide around what portion of your dropdown candidates may have low tax basis and we need a new restructure in order to complete those drops?

[Matt Lucey:]

No, I think that is something that we're not going to disclose I don't think other folks are going to disclose either. What we would say is some of these assets historically are captured essentially as cost centers. So, we've walked analysts and investors through the need to basically convert to profit centers. Every dropdown MLP does that for these assets that are associated with refineries. But more importantly for us by growing our refining asset base by 60% over the past year, we do have assets that ultimately are the most recent ones that we've dropped i.e., the Torrance Valley Pipeline Company. I think it's a safe assumption that those are the types of assets, the traditional hard logistics assets that we will be dropping as we go forward.

[Ryan Levine:]

Okay. And at any point would you consider a change to your strategy around the rail assets to move that out of the Partnership?

[Matt Lucey:]

I think we still have plenty of runway on a contract that is ultimately set up between the parent and MLP and while there are periods, and we've seen this recently, that the asset itself is underutilized versus its minimum volume commitment. Ultimately it still is a contract that the parent company entered into and it's a money good contract, quite frankly it provides optionality for the parent. I think our longer term goal is to continue to diversify away from the original assets that were in the MLP. Investors should know we have almost tripled the size of the earnings power of the MLP in less than three years here. It's been pretty steady growth as we go and I think, for now, we are happy with what we have. We have plenty of time left on those contracts going into the year 2021.

[Ryan Levine:]

Great thank you.

[Operator:]

At this time we have no further questions. I'd like to turn it back over to our speaker, Matt, for closing remarks.

[Matt Lucey:]

Thank you everyone for participating and we look forward to communicating with you in the near future.

[Operator:]

We'd like to thank everybody for their participation on today's conference call. Please feel free to disconnect your lines at any time.