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Holly Energy Partners LP (HEP)
Q2 2020 Earnings Call
Aug 5, 2020, 4:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Holly Energy Partners Second Quarter 2020 Conference Call and Webcast. [Operator Instructions] The floor will be open for your questions following the presentation. [Operator Instructions] Please note, that this conference is being recorded.
It is now my pleasure to turn the floor to Trey Schonter.
Trey Schonter -- Investor Relations
Thanks, Ian, and thank you all of you for joining our second quarter 2020 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 the results for the quarter ending June 30, 2020. If you would 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, August 5, 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 you, Trey. Good afternoon, everyone and thanks for joining the call today. On behalf of Holly Energy Partners we hope that you and your families are safe and in good health during this difficult time.
To begin, I'd like to thank our employees for their continued focus and flexibility in this challenging environment. In response to COVID-19 and with the health and safety of our employees is our top priority, we have maintained several safety protocols to help protect our employees, which include limiting on-site staff to essential operational personnel only, staggering shifts and monitoring health for everyone in our pipeline control center and the work from home policy for certain employees. These actions have been successful in supporting the continuity of our operations and we will closely monitor COVID-19 developments to properly address these policies going forward.
Despite the volatile and challenging backdrop, HEP delivered solid second quarter results, highlighting the strength and resilience of our business model. On July 23, consistent with the guidance issued in April, our Board approved a $0.35 per unit quarterly cash distribution to be paid on August 13. This represents the same amount paid in the previous quarter.
As a result, the demand destruction from COVID-19, we experienced a 26% reduction in overall crude and product pipeline volumes compared to the second quarter of 2019. However, total revenues were only down 12%, representative of the strength of our minimum volume commitments. Over the course of the second quarter, we saw volumes bottom in May with June showing incremental improvement. Looking forward, we anticipate this improvement to continue as our customers adjust refinery production to match increasing market demand.
Turning to project updates. The Cushing Connect joint venture terminal went into full service on April 1 of 2020 and we anticipate $2.5 million in annualized EBITDA net to HEP. The pipeline portion of the JV remains on schedule with an expected start date in the first quarter of 2021. We expect the pipeline to produce $5 million in annualized EBITDA net to HEP. Both JV assets are supported by a long-term minimum volume commitment.
On June 1, HollyFrontier announced plans to convert its Cheyenne refinery to a renewable diesel plant, with the conversion project beginning in the third quarter of 2020. HEP receives minimum annualized payments of approximately $17.5 million related to our assets inside the refinery gate. As the conversion process begins, we will begin negotiations with HollyFrontier related to potential changes to our existing throughput agreement.
Moving forward, we will maintain the same level of focus and commitment to operating safely and responsibly in order to facilitate the continuity of our business during this challenging environment. Again I hope everyone stays healthy during this time.
And with that, I'll turn the call over to John.
John Harrison -- Senior Vice President, Chief Financial Officer and Treasurer
Thanks, Rich. For the second quarter of 2020 net income attributable to Holly Energy Partners was $76.5 million compared to $45.7 million in the second quarter of 2019. The increase was primarily due to a $33.8 million non-cash gain resulting from the renewal of a third party throughput agreement that met the definition of a sales-type lease.
Excluding this one-time gain, net income attributable to HEP for the quarter was $42.6 million or $0.40 per limited partner unit. This represents a $3.1 million decrease compared to the same period in 2019. The decrease was due to lower refinery utilization rates related to COVID-19 and partially offset by lower operating expenses and lower interest expense.
In the second quarter of 2020, adjusted EBITDA was $80.2 million compared to $88.6 million in the same period last year. The reconciliation table reflecting these adjustments can be found in our press release. During the quarter HEP generated distributable cash flow of $65.5 million, a $2 million decrease compared to the same period last year. Our distribution coverage ratio was 1.9 times for the quarter and just under 2.0 times year-to-date.
Capital expenditures and joint venture investments during the quarter were approximately $15 million, including a $11 million for the Cushing Connect joint venture and approximately $1 million in maintenance capex. For the full year 2020, our projected capital expenditures and share of joint venture investments remain unchanged at $58 million to $69 million. As of June 30, HEP had approximately $1.5 billion of total debt outstanding consisting of $500 million of senior notes due 2028, and approximately $1 billion drawn on our $1.4 billion revolving credit facility which matures in July of 2022.
Our liquidity at the end of the second quarter was over $400 million and our debt to trailing 12 month adjusted EBITDA was 4.3 times, which is well below our leverage covenant of 5.25 times. As previously communicated, we intend to fund all capital investment with cash flow from operations and plan to use incremental retained cash flow to reduce leverage.
In summary, HEP delivered solid second quarter results, and our fee based business model continues to position us well even during the challenging macro environment.
Now, I'll turn the call back to the operator for any questions.
Questions and Answers:
Operator
The floor is now open for questions. [Operator Instructions]
There are no questions at this time. I turn the call back to Trey for any 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. Thank you.
Operator
[Operator Closing Remarks]
Duration: 9 minutes
Call participants:
Trey Schonter -- Investor Relations
Richard L. Voliva III -- President
John Harrison -- Senior Vice President, Chief Financial Officer and Treasurer
