PBF Logistics LP (NYSE:PBFX) Q1 2019 Earnings Conference Call May 1, 2019 11:00 AM ET
Colin Murray - Head of Investor Relations
Matthew Lucey - President and Director
Erik Young - Senior Vice President and Chief Financial Officer
Conference Call Participants
Justin Jenkins - Raymond James & Associates
Ryan Levine - Citigroup
Good day, and welcome to the PBF Logistics First Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions] Please note, today's call is being recorded.
And it's my pleasure to turn the floor over to Colin Murray of Investor Relations. Please go ahead.
Thank you, Keith. Good morning. Happy May Day, and welcome to today's call. With me today are Matt Lucey, Executive Vice President; and Erik Young, our CFO; and several other members of the partnership's senior management team.
If you'd like a copy of today's earnings release, it is available on our website. Before we begin, I'd like to direct your attention to the forward-looking statements disclaimer contained in today's press release. In summary, it outlines that statements in the press release and on this call that state the partnership's or management's expectations or predictions of the future are forward-looking statements intended to be covered by 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.
As noted in our press release, we will be using certain non-GAAP measures while describing the partnership's operating performance and financial results. For reconciliations of non-GAAP measures to the appropriate GAAP figure, please refer to the supplemental tables provided in today's press release.
Additionally, today we will also - pardon me - now, I will turn the call over to Matt Lucey.
Thanks, Colin. Good morning, everyone, and thanks for joining the call. Last week we pre-announced our earnings in conjunction with the announcement of the $200 million drop-down acquisition of the remaining 50% interest of the Torrance Valley Pipeline company.
This transaction has strategic importance for PBF Logistics on a couple of levels. In that it consolidates ownerships of major asset within the partnership and secures the partnership's near-term growth requirements.
Our highly successful capital raise satisfies the partner's equity financing needs for this transaction and through 2020. In combination with our ongoing growth projects, the drop-down delivers our targeted growth for 2019.
We do intend to continue growing at $0.005 per quarter. With that, we're pleased to announce our eighth consecutive distribution increase to $0.51 per unit for the current quarter. Our organic projects announced a year ago are currently being executed with a significant portion of those assets generating free cash today.
Our base EBITDA of $177 million for 2019 incorporates these activities and our new 2019 target will increase to approximately $195 million of EBITDA with half-a-year of contribution from Torrance Valley Pipeline.
Our total growth CapEx for 2019 is expected to be approximately $15 million to $20 million, with much of that investment being focused on the development of opportunities at East Coast Storage Assets in terms of tank refurbishment, converting storage to heated tanks and efforts to increase loading capabilities.
In 2020, we expect our annual EBITDA to increase to approximately $220 million, which includes a full year of 100% ownership of the Torrance Valley Pipeline and $15 million for the East Coast Storage Assets operations and contributions from Maersk processing arrangement as discussed on our last call.
It is important to note that the updated growth plan excludes any acquisition opportunities and the potential ACE pipeline. By way of an update, the ACE pipeline open season is still ongoing. It's a highly strategic project that brings support from PBF's Chalmette Refinery, and we expect to provide future updates on this project after the open season closes.
The partnership continues to demonstrate stability to grow through our three-pronged approach of organic projects, third-party acquisitions and most recently dropdown. We will continue to develop our organic projects and follow our significant strategic steps to deliver growth this year and into the future.
With that, I'll turn it over to Erik.
Thank you, Matt. This morning, we reported first quarter net income attributable to the limited partners of $17.4 million. Adjusted partnership EBITDA was $43 million, excluding $6.1 million of expenses, primarily associated with the accretive IDR simplification transaction, environmental remediation costs associated with our East Coast Terminals, stock-based compensation and a true-up for revenue associated with the Paulsboro Natural Gas Pipeline due to a reduction in its pipeline tariff based on the lower than budget project costs.
During the quarter, we spend approximately $1.5 million in maintenance CapEx and roughly $10 million on the growth projects that mentioned a moment ago. Our total CapEx for 2019 is expected to be approximately $30 million to $35 million. Based on reported EBITDA and pro forma for recent equity offering, first quarter coverage was 0.8 times. We expect our full year 2019 coverage, excluding one-time expenses to be approximately 1.05 times.
We maintain our long-term outlook for targeted coverage of 1.15 times and expect to meet and exceed this as our current investments in organic projects and the full Torrance Valley pipeline contribution results in incremental DCF over the next 18 to 24 months.
We ended the quarter with over $350 million in liquidity, including $16.4 million of cash and over $335 million of availability under our revolving credit facility. Net debt to adjusted run rate EBITDA was 3.8 times.
We expect to fund the Torrance Valley pipeline dropdown was $65 million drawdown on our acquisition revolver and $135 million of gross proceeds from last week's equity raise. This capital raise was the largest in the partnership's history since our IPO. Through our confidentially marketed process, the partnership was successful in generating significant demand in an oversubscribed common unit offering at a 3.5% discount to our last close.
We were able to upsize the offering in an equity market that has been challenging for MLPs in recent years. This offer improves that equity capital is available from investors with an appetite to invest in high-quality opportunities in the MLP space. As we look forward our simplified structure and the execution of our three-pronged strategy to deliver accretive growth should continue to drive improving liquidity and increased coverage.
Operator, we've concluded our opening remarks, and now we'll open the call for questions.
[Operator Instructions] We will take our first question from Justin Jenkins with Raymond James. Please go ahead.
Great. Thanks. Good morning, everybody and appreciate all the color here. I guess just starting from a clarification standpoint on the dropdown. Second quarter close, is it right to think about it maybe mid quarter or is it towards the back end of 2Q here from a close standpoint?
It's probably closer to the back end, it simply driven by the fact that we are in the midst of board meetings and earnings call this week, and we'd like to keep relatively clean accounting cutoff. So it's probably the end of May.
Perfect. Thanks. And then on the growth front from here looks like the CapEx program was weighted mostly towards the first quarter. Should we expect that that the balance of the growth spend for 2019 is more ratable throughout the rest of the year? Is it more of a front half, one half program?
It's probably more front half and even through kind of the first three quarters of this year, simply because we most of that growth CapEx is obviously associated with assets that we like to get in to service sooner rather than later.
Perfect. And probably won't get real far here, but last question for me on the ACE pipeline just thinking through the potential scope and timing that you said you'd share more after the open season closes, but just any thoughts on when we can expect maybe an FID or something like that?
We are not get into the specific dates on that. We continue to be excited about the project, we think it's a resilient project and we look forward to talking more about it when we can.
Okay. Perfect. Thanks, guys.
[Operator Instructions] We'll go next to Ryan Levine with Citigroup. Please go ahead.
Good morning. In terms of your funding plan going forward, clearly you were able to raise capital in the equity market. Is this going to be more opportunistic? Or can we see proactively approaching equity investors maybe not through overnights but through this mechanics to fund some of your organic growth?
I think over the past year to 18 months, we've been very vocal about difficulties and accessing the MLP equity market. But clearly, from our perspective it's been - you need to take a little bit of extra time and be very strategic with, A, who you approach, and B, we really needed to make sure that people understood the transition from a pure play drop-down story to a much more multifaceted approach to growth here.
And as a result, we also cleaned up our IDR structure during the first quarter, which we think was a key ingredient in kind of helping us get over this $135 million offering last week. So I think from our perspective now, we've tried to lay out for investors a pretty clean path here around how we're going to basically fund our internal plans as a combination of organic projects and drop-downs.
And as we sit here today, based on everything that we see internally that we have control over, it does not feel like we'll need to access the equity markets again. We've got kind of eighteen months here to get us through the end of 2020. We're obviously looking at third party acquisition opportunities. And we'll have to tackle those as they come.
But ultimately, to be able to pinpoint timing and size and strategic importance is very difficult to do on an earnings call. And quite frankly, these transactions tend to kind of ebb and flow. And so, ultimately, we've been much more focused on things that we can control investing in our organic projects today that will ultimately lead to free cash flow for the partnership over the next 18 to 24 months.
Yeah, thank you. And to follow-up, there has been comments in this call and in the call earlier this morning about acquisitions and your appetite for looking at strategic deals. Would - in that scope, is the preference for that to be done at the PBF level? Or just PBFX have a willingness to participate in some type of transaction that would involve both securities?
PBF and PBFX are always evaluating opportunities that exist outside of our company. Sometimes those opportunities go hand in hand. And sometimes they are discrete opportunities for each company. We are always looking for ways to improve the shareholder value. So that obviously includes looking at third-party acquisition.
Okay. And then, lastly, in terms of organic growth, there has been a number of projects that have been outlined over the last couple of years. Is there any update as to any of those projects that are moving closer to start or pursuing more aggressively.
Yeah, how I describe it, I think a year ago, I don't remember the exact date of the call. But a year ago call in April, we announced organic projects and the spending associated with that. And I would describe it as 90% of that work has been complete. And so we should be achieving 90% of the EBITDA that we targeted on a run-rate basis today.
Okay, great. Thank you.
And it appears we have no further questions. I'll return the floor to Matt Lucey for closing remarks.
Well, I thank everyone for participating. We look forward to talk to you next quarter. Have a great day.
This will conclude today's program. Thank you for your participation. You may now disconnect.