Delek Logistics Partners (DKL) made its public debut on Friday, November 2nd. The growth-oriented partnership formed by Delek US Holdings owns refining and marketing assets in the SouthEast of the US. Shares in Delek Logistics ended their first day with gains of 5.9% to $22.24 per share.
The Public Offering
Delek Logistics Partners is a growth-oriented limited partnership formed by Delek US Holdings (DK). The partnership owns pipeline and transportation assets as well as wholesale marketing and terminal assets, key to the downstream operations of Delek US Holdings.
Delek Logistics Partners sold 8.0 million shares for $21 a piece. Delek Logistics raised $168 million in gross proceeds in the offering process. Based on the offer price of $21.00, the partnership is valued at $515 million.
The offering is quite a success. The offer price was set at the high end of the preliminary $19.00-$21.00 price range set by the firm and its bankers. All shares were sold by the partnership.
In total, 33% of the limited partnership's shares outstanding were offered. At Friday's closing price of $22.64 per share, the firm is valued at $557 million.
The major banks that brought the company public were Bank of America/Merrill Lynch, Barclays, Wells Fargo and Goldman Sachs, among others.
Delek Logistics Partners operates pipeline and transportation assets including 400 miles of crude oil transportation pipelines, and storage tanks with a capacity of 1.4 million barrels. Wholesale and marketing assets include marketing services for the Tyler refinery in Texas and the El Dorado refinery in Arkansas.
On a pro-forma basis, Delek Logistics Partners reported annual revenues of $765.8 million. The company net earned $34.6 million. For the first six months of 2012, revenues totaled $405.0 million. The partnership net earned $17.5 million for the period.
Delek Logistics Partners expects that the $168 million in gross proceeds will result in net proceeds from the offering of approximately $150 million. The company will make a $57.8 million cash distribution to Delek US Holdings, and retire $50.9 million in debt under the previous credit facility. Furthermore, some $35.0 million in working capital will replenish amounts distributed to Delek.
On a pro-forma basis, Delek Logistics operates with $35 million in cash and equivalents. The company operates with $90 million in revolving credit facilities, for a net debt position of $55 million.
The partnership is on track to report annual revenues of $800 million for 2012, on which the partnership could earn $35 million. Based on Friday's valuation of $557 million, the firm is valued at 0.7 times annual revenues and 16 times annual earnings.
As noted above, the offering of Delek Logistics Partners is quite a success. Shares rose 5.9% on their first trading day, ending the week at $22.64. As such, shares are trading some 13% above the midpoint of the initially guided price range.
The partnership has an agreement that requires the company to make a minimum quarterly distribution of $0.375 per quarter. As such, Delek Logistics Partners, pays an annual dividend yield of 6.6% at Friday's closing price.
The sentiment around the offering of Delek Logistics has been very good. Shares of Delek US Holdings, the partner company behind the company have doubled in 2012. A high initial dividend yield and a strong sentiment towards energy partnerships have resulted in a successful offering. The partnership is still heavily dependent on Delek as it still generates a majority of the partnership's revenues.
In recent weeks, more energy limited partnerships have gone public. Last week, Lehigh Gas Partners LP (LGP) had a successful public offering. The offering of MPLX LP (MPLX) was even a greater success.
Limited Partnerships are special investment cases, especially when the fate of the company depends heavily on operations of a related company, in this case Delek US Holdings. Before investing, investors should consider the tax implications and specific risks to investing in limited partnerships. The current dividend yield of 6.6% of Delek Logistics is in line with many other partnerships.
I remain on the sidelines given the high dependence on Delek US Holdings and the limited flexibility of the partnership.