A Look at the Market's Newest MLP: PBF Logistics LP

After a veritable onslaught of master limited partnership initial public offerings in 2013, MLP IPOs in 2014 have been few and far between. Finally, PBF Logistics LP (PBFX) hit the street two weeks ago as units began trading priced at $23 each. The new entity is a logistics spinoff from PBF Energy (PBF -1.91%), a refiner with assets in Ohio, New Jersey, and Delaware. Today, we're taking a closer look at the market's newest MLP to see what it has to offer investors.

The MLP
Of course, investors dead set on picking up units of PBF Logistics should read the entire prospectus, but we'll cover the basics here.

First and foremost, as refiners go PBF Energy is on the small side, thus PBF Logistics is also a small operation. Its initial assets consist of one rail terminal and one truck terminal:

Source: Company filing.

That's an awfully small footprint, but that's fairly common for MLP spinoffs. Their success is predicated on growth, which often comes in the form of dropdowns from the general partner, in this case PBF Energy and its subsidiaries.

With that in mind, it's important to consider the assets available for potential future dropdowns. Here's an example of what PBFX has first right of offer on from PBF Energy:

• three storage facilities with a combined capacity of 21 million barrels
• two marine terminals with five berths
• one products pipeline
• one rail terminal
• one heavy crude terminal

Again, a small parent refiner means limited options for growth. Rome wasn't built in a day, but investors need to know PBF Logistics does not have the same immediate dropdown potential as Phillips 66 Partners (PSXP) or Valero Energy Partners (NYSE: VLP).

From a financial standpoint, PBFX has long-term fee-based agreements in place with PBF Energy. Both assets have an initial contract term of seven years and a maximum term of 17. The rail facility is supported by a minimum throughput commitment of 75,000 barrels per day through September, and 85,000 bpd after that. The truck terminal's minimum throughput is 4,000 bpd. Management expects that these minimum commitments will generate $61.7 million in revenue for the 12 months ending June 30, 2015.

Based on that financial expectation, the partnership's minimum quarterly distribution is set at $0.30 per unit per quarter, or $1.20 per unit annually. Given its IPO price of $23, that means the MLP's initial yield was 5.2%. However, shares popped 20% on its first day of trading and are up roughly 17% at the time of this writing, giving it a yield closer to 4.4%. That's not great for an MLP, but compared to some of its refining peers, it's actually pretty solid. Phillips 66 Partners is currently yielding 1.8%, while Valero Energy Partners is posting 1.9%.

While we're at it, let's take a look at the respective IPOs of those two MLPs, compared to PBFX:

Source: Company filings, Nasdaq, Yahoo! Finance.

Clearly, the market likes refining logistics spinoffs. The reason that PSXP and Valero Energy Partners post such measly yields is because units have traded through the roof since their IPOs last July and December, respectively.

Though the performance of Phillips 66 Partners and Valero Energy Partners in no way guarantees the success of PBF Energy, it does indicate the potential to succeed. Both MLPs went public with very small asset footprints as well, and in that regard, the comparison is not unwarranted.

Bottom line
Fools don't typically rush into IPOs, and PBF Logistics is no exception. Management has been quite transparent with its financial expectations, giving investors the opportunity to make sure the partnership delivers before buying in.