Partners' Equity

9 Months Ended

Sep. 30, 2015

Partners’ Equity

As of September 30, 2015, HFC held 22,380,030 of our common units and the 2% general partner interest, which together constituted a 39% ownership interest in us.

Allocations of Net Income

Net income attributable to HEP is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement. HEP net income allocated to the general partner includes incentive distributions that are declared subsequent to quarter end. After the amount of incentive distributions is allocated to the general partner, the remaining net income attributable to HEP is allocated to the partners based on their weighted-average ownership percentage during the period.

The following table presents the allocation of the general partner interest in net income for the periods presented below:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(In thousands)
General partner interest in net income	$	483	$	423	$	1,344	$	1,051
General partner incentive distribution	10,347		8,517		29,491		24,283
Total general partner interest in net income	$	10,830	$	8,940	$	30,835	$	25,334

In addition to the allocation of net income as presented above, the consolidated statement of partners equity for the nine months ended September 30, 2015, reflects a cumulative revision of net income allocations between the general partnership interest and common units of approximately $8.8 million for net income related to years ended 2014 and prior. This revision had no impact on historical limited partners’ per unit interest in earnings.

Cash Distributions

Our general partner, HEP Logistics, is entitled to incentive distributions if the amount we distribute with respect to any quarter exceeds specified target levels.

On October 22, 2015, we announced our cash distribution for the third quarter of 2015 of $0.555 per unit. The distribution is payable on all common and general partner units and will be paid November 13, 2015, to all unitholders of record on November 2, 2015.

The following table presents the allocation of our regular quarterly cash distributions to the general and limited partners for the periods in which they apply. Our distributions are declared subsequent to quarter end; therefore, the amounts presented do not reflect distributions paid during the periods presented below.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(In thousands, except per unit data)
General partner interest in distribution	$	901	$	825	$	2,639	$	2,422
General partner incentive distribution	10,347		8,517		29,491		24,283
Total general partner distribution	11,248		9,342		32,130		26,705
Limited partner distribution	32,554		30,648		96,051		90,625
Total regular quarterly cash distribution	$	43,802	$	39,990	$	128,181	$	117,330
Cash distribution per unit applicable to limited partners	$	0.5550	$	0.5225	$	1.6375	$	1.5450

As a master limited partnership, we distribute our available cash, which historically has exceeded our net income attributable to HEP because depreciation and amortization expense represents a non-cash charge against income. The result is a decline in our partners’ equity since our regular quarterly distributions have exceeded our quarterly net income attributable to HEP. Additionally, if the asset contributions and acquisitions from HFC had occurred while we were not a consolidated variable interest entity of HFC, our acquisition cost in excess of HFC’s historical basis in the transferred assets would have been recorded in our financial statements at the time of acquisition as increases to our properties and equipment and intangible assets instead of decreases to our partners’ equity.