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Holly Energy Partners LP (HEP)
Q4 2019 Earnings Call
Feb 19, 2020, 4:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Holly Energy Partners Fourth Quarter 2019 Conference Call and Webcast. [Operator Instructions] It is now my pleasure to turn the floor over to Trey Schonter. Trey, you may begin.
Trey Schonter -- Investor Relations
Thanks Sunetra [Phonetic], and thank you all for joining our fourth quarter 2019 earnings call. I'm Trey Schonter with Investor Relations for Holly Energy Partners. Joining us today are Rich Voliva, President; and John Harrison, Senior Vice President and CFO. This morning, we issued a press release announcing results for the quarter ending December 31, 2019. If you'd like a copy of today's press release, you may find one on our website at hollyenergy.com.
Before Rich and John proceed with their remarks, please note the Safe Harbor disclosure statement in today's press release. In summary, it says statements made regarding management expectations, judgments or predictions are forward-looking statements. These statements are intended to be covered under the Safe Harbor provisions of Federal Securities Laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. Today's statements are not guarantees of future outcomes. Also, please note that information presented on today's call speaks only as of today, February 19, 2020. Any time-sensitive information provided may no longer be accurate at the time of any webcast replay or reading of the transcript.
Finally, today's call may include discussion of non-GAAP measures. Please see today's press release for reconciliations to GAAP financial measures.
And with that, I'll turn the call over to Rich.
Richard L. Voliva III -- President
Thank Trey, and thanks to each of you for joining the call this afternoon. HEP wrapped up 2019 with sound fourth quarter results and announced a distribution of $0.6725 per unit. For the full year of 2019, Holly Energy Partners declared distributions of $2.6875 per unit, totaling $273 million of distributions for the year.
In the fourth quarter, distribution coverage fell to 0.94 times due to the volume impacts of heavy turnaround activity in HollyFrontier's refineries. However, in December, we began to see pipeline and terminal volumes improve to more normalized levels. And we anticipate our coverage ratio will increase to 1 times or higher for the first quarter of 2020. In the full year 2020, we plan to hold the quarterly distribution constant at $0.6725 per LP unit, while maintaining a coverage ratio of 1 times.
In October, we announced our Cushing Connect joint venture with Plains All American, which will terminal crude oil for both HollyFrontier's El Dorado and Tulsa refineries and operate a new-build pipeline from this terminal to the Tulsa refinery. The 1.5 million barrel terminal is expected to begin service during the second quarter of 2020, and we anticipate the 150,000 barrel per day pipeline to come online during the first quarter of 2021. Combined, we expect initial annual EBITDA multiple of 8 times to 9 times once both the terminal and pipeline are in service.
During the quarter, we also renewed certain portions of our agreement with Delek. We are actively engaged in unlocking uses [Phonetic] for the specific assets that were not renewed. Given the quality and location, we remain confident that we'll be able to profitably utilize these assets during 2020.
Looking to the rest of the year, we're positioned for a good 2020. In terms of commercial risk, we do not have a third-party recontracting event until 2022. Additionally, with a light turnaround year for our largest customer, HollyFrontier, we expect strong volume levels. And we remain committed to the safe, clean and reliable operations.
Now, I'll take the opportunity to introduce you to HEP's new Chief Financial Officer, John Harrison. Since joining the Company in 2005, John has played an integral role in HEP's finance, treasury, investor relations and corporate development efforts, serving most recently as Vice President of Finance, Investor Relations and Treasurer for HEP. We look forward to getting John out to meet all of you soon.
And with that, I'll turn the call over to John.
John Harrison -- Senior Vice President, Chief Financial Officer and Treasurer
Okay. Thanks Rich. For the fourth quarter of 2019, net income attributable to HEP was $45.7 million compared to $47.5 million in the fourth quarter of 2018. As Rich mentioned, HFC experienced heavy maintenance across its refining system, and the impact to HEP net income was primarily due to lower throughput at HFC's Navajo refinery and lower equity in earnings on our Osage Pipe Line joint venture.
During the quarter, HEP generated distributable cash flow of $64.5 million, a $300,000 increase over the same period last year. Our distribution coverage ratio was 0.94 times for the quarter and 0.99 times for the year.
Fourth quarter adjusted EBITDA was $86.9 million compared to $89.9 million in the fourth quarter of 2018. In accordance with the new lease accounting standard, we recognized a net adjustment to EBITDA of negative $800,000 for the quarter. This is comprised of $2.4 million of pipeline tariffs not included in the revenue line, offset by a $3.2 million benefit to operating expense for financing lease payments. A table reflecting these adjustments is available in our press release. Going forward, we expect the new lease accounting standard will require similar adjustments as we renew existing contracts or execute new contracts.
Our capital expenditures and joint venture investments during the quarter were approximately $26 million, including $3 million in maintenance capex and $18 million for Cushing Connect. In 2020, we expect to spend between $8 million and $12 million for maintenance capex, $5 million to $7 million for refinery unit turnarounds, and $45 million to $50 million for expansion capital, inclusive of our share of the Cushing Connect joint venture.
As of December 31, 2019, HEP had $1.46 billion of total debt outstanding, resulting in a debt to adjusted EBITDA of just over 4.0 times. I'd also like to highlight, in February this year, we refinanced our 6% senior notes due 2024 with a new issue 5% coupon $500 million senior notes due 2028. This refinance will save approximately $4 million of interest expense per year, while extending the maturity another four years.
Looking ahead, we will continue our disciplined approach to growth and evaluate both organic and third-party opportunities where we can create value for our unitholders.
Now, I'd like to turn the call back over to the operator to answer any questions.
Questions and Answers:
Operator
[Operator Instructions] Thank you. Your first question comes from Craig Weiland with US Capital Advisors.
Craig Weiland -- US Capital Advisors -- Analyst
Thank you for taking my questions. I have two of them, if you don't mind. First one...
Richard L. Voliva III -- President
Hey, Craig, how are you doing?
Craig Weiland -- US Capital Advisors -- Analyst
Good. First, I was just hoping you can provide a quick update on the progress you're making with the Cushing Connect project. And the second one has to do with the monthly FERC meeting tomorrow. One of the items on the agenda relates to the potential revision of indexing policies. And it appears that FERC will consider modifications that could prevent index-based tariff increases for pipelines where revenues exceed costs by 15% for both the prior two years. So I was just curious if you have any thoughts or expectations for the meeting and whether you think there are any potential read-throughs to HEP. Thank you.
Richard L. Voliva III -- President
Hey, Craig. So on Cushing Connect, good news here. So far, we are on schedule and on budget. It is admittedly early days. We're primarily in the right-of-way portion right now, so we expect to clear that out over the next few weeks to a few -- a couple of months. Really for us, the heavy construction phase and heavy spend will be over the course of the summer time. So, so far so good, would be our answer there.
On the FERC meeting, no, I don't -- we don't really have a whole lot of insight to offer there. And I don't -- based on the kind of comments you were making, would not expect [Indecipherable] impact to HEP.
Craig Weiland -- US Capital Advisors -- Analyst
Got it. Appreciate the insight.
Richard L. Voliva III -- President
Thank you.
Operator
Your next question comes from Theresa Chen with Barclays.
Theresa Chen -- Barclays -- Analyst
Good afternoon. I wanted to ask you about your outlook for utilization at UNEV, just given the volatility on the product side in Pad 5[Phonetic].
Richard L. Voliva III -- President
Theresa, I think overarching, it's still generally the same story, which is to say, there's going to be a lot of seasonality there. The Salt Lake valley will [Phonetic] tend to be long product in the winter time, short in the summertime. So we'd expect, no matter what, to see more volume there in the winter, kind of fourth quarter and the first quarter than the second and third. There is obviously noise that comes around that, depending on refinery uptime and downtime on both ends of the pipe, frankly. So we saw some refinery downtime in the valley into October, November this year. So it kept more barrels up in Salt Lake City than would normally be on the pipe at that part of the year, and we saw that bounce back in December. So with those caveats around refinery downtimes, we would still expect to see sort of normal seasonality there.
Theresa Chen -- Barclays -- Analyst
Thank you.
Richard L. Voliva III -- President
Thanks.
Operator
I will now turn the floor back over to Trey for closing remarks.
Trey Schonter -- Investor Relations
All right. Thanks again for joining the call today. Feel free to reach out to Investor Relations if you have any questions.
Operator
[Operator Closing Remarks]
Duration: 12 minutes
Call participants:
Trey Schonter -- Investor Relations
Richard L. Voliva III -- President
John Harrison -- Senior Vice President, Chief Financial Officer and Treasurer
Craig Weiland -- US Capital Advisors -- Analyst
Theresa Chen -- Barclays -- Analyst
